How did companies like Google, Paypal, Amazon and Telsa become so successful, and how can you get there as a startup? In “Zero to One”, 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 summary, we’ll be giving 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.
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.
Changing the Future: From Zero to One
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. [Do get more details in the book or our full 11-page 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.
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?
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. Check out our complete 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:
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).
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.
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.
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 – get more details in our full book summary or get a copy of the the book.
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 the complete 11-page summary.
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.
- Engineering: Can you create breakthrough technology instead of incremental improvements?
- Timing: Is now the right time to start your particular business?
- Monopoly: Are you starting with a big share of a small market?
- People: Do you have the right team?
- Distribution: Do you have a way to not just create but deliver your product?
- Durability: Will your market position be defensible 10 and 20 years into the future?
- 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. If you enjoyed the ideas in this article, do check out our complete summary bundle or read the book for the full mojo!
Other Details in “Zero To One”
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.
Start changing the future by moving from zero to one!