Zero to One – A Summary

“The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine”

In Peter Thiel’s book Zero to One, the author imparts his thoughts on technology and startups, specifically the idea of creating something new, of going 0 to 1. Improving on an existing concept is to go from 1 to n; it doesn’t create something new. Thiel expresses the 2 concepts as horizontal and vertical progress. Globalization is the best example of horizontal progress: taking things that work in 1 area and applying them to another area. China’s 20-year plan is to catch up to where the US is today, reproducing everything that’s worked in the developed world, from railroads to air conditioning, to wireless. Technology is an example of vertical progress: creating a new or better way of doing things, not just limited to computers.

 

Dot-Com Bubble

Image result for dot com bubble

In the 90s the internet was made accessible to the general public by Netscape. Throughout the decade, entrepreneurs saw and took advantage of a huge market brimming with eager investors looking to cash in, so thousands of technology companies were created. In 2000, the bubble burst. The dot-com era taught entrepreneurs 4 things.

  1. Make incremental advances – Grand visions inflated the bubble. Small incremental steps are the only safe path forward.
  2. Stay lean and flexible – Don’t create a strict plan; planning is arrogant and inflexible. The only way to be successful is to roll with the punches
  3. Improve on the competition – Improve on recognizable products, go from 1 to n
  4. Focus on product not on sales – If your product requires advertising/sales, then it’s not good enough

Thiel points out, that the opposite seems to be true.

  1. It’s better to be bold than to make trivial advances
  2. A bad plan is better than no plan
  3. Competitive markets kill profits
  4. Sales matters just as much as product

Monopolies

Image result for monopoly board

“Every business is successful exactly to the extent that it does something others cannot. [Therefore], monopoly is the condition of every successful business” (34).

The author urges the reader to rethink the idea of monopolies. Sure, monopolies can be rent collectors in a static world, but we live in a dynamic world, one that’s always innovating. Real life monopolies are more creative than their dystopian counterparts. Our monopolies actively give customer more choice by creating new categories and they are a necessary part of improving society. Thiel says competition is an ideology. It is in our blood. We’ve competed for grades, for class rank, for jobs, etc. But competition is bad for the company. The competition between Microsoft and Google in the late 2000s led to Apple dominating both of them.

Escaping competition creates a monopoly, but how do you make it durable? There are 4 key characteristics

  1. Proprietary technology – Technology should be 10x better than its closest substitute in an important dimension in order to maintain a real advantage. The best way to do this is to invent something new.
  2. Network Effects – Facebook gets its value from its 2+ billion users. Without its userbase, what would be the point of the social network?
  3. Economies of Scale – Monopolies get stronger as they grow and fixed costs go down
  4. Branding – Think Apple. Interbrand, an international brand consultancy, lists Apple’s brand alone to be worth $184 million, the strongest brand in the world.

To build a monopoly, a company must first dominate a small market instead of taking a small part of a large market. Facebook started as just a social network for Harvard students before expanding outward. From there, you can scale up. Before becoming the “everything store”, Amazon started as a simple online book retailer. The focus should not be on disrupting an existing industry, because then you are too focused on existing limitations, and will have to compete with established companies in that field. The focus should be on creating a new industry altogether, where there is no competition.

Foundations

Thiel believes that a startup messed up at the foundation cannot be fixed. He goes on to describe the foundations that every startup must have.

  1. Founding matrimony – If founders don’t get along, the company becomes the victim.
  2. Control – You need to answer: Who owns the company? Who runs the company? and who governs the company’s affairs? They are usually not the same person.
  3. In or Out – All employees should be full time and need to be invested in the business’s success.
  4. Cash is not king – A cash-poor executive will focus on increasing the value of the company and sets the standard for the rest of the company.
  5. Vested interests – Giving employees ownerships makes them invested in the success of the business.
  6. Extending the founding – As long as a company is creating, it’s being founded, so keep innovating.

Man vs Machine

Image result for man vs machine

As machines continue to improve, people are always worried that they will eventually take all of the human jobs. Thiel believes that machines are complementary rather than supplementary. Machines are good at parsing through large data sets, humans are good at making sense of that data and making decisions. For Paypal, man-machine hybrid technology was key for their fraud detection software. It would take too long for humans to sort through all the transactions, and machines couldn’t adapt to new types of fraud. The solution was to create a software that would flag any suspicious activity, which would then be reviewed by a human. The technology was so impressive that it was used by the FBI to fight financial crime. It was also the basis for Thiel’s next company Palantir, which is used by the US government today to catch fraud. It is rumored to even have been instrumental in the capture of Osama Bin Laden.

Conclusion

Thiel ends the book with 7 Questions that every business must answer.

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

The topic that I found most fascinating about the book was Thiel’s eager defense of monopolies. The word monopoly has to me always held negative connotations, often going hand in hand with greed and top-hats. Even the goal of the board-game, monopoly is to bankrupt your opponents and alienate your family members. I’ve always believed that without competition, innovation becomes stagnant. Why innovate when there’s no threat of losing your customer base? But this book has convinced me otherwise. Google and Amazon are incredible, both monopolies in their own right, but both have used their abundant resources to innovate: self-driving cars, Amazon Prime, voice assistants, etc. Maybe there is a place for monopolies in the world.

The book is written from a unique perspective. Theil’s experiences are second to none and offer an insider’s guide to creating a successful company. He offers a very unique perspective, often contradicting the general wisdom of entrepreneurship, which forces to the reader to critically compare the different viewpoints. It’s a book that really makes you think and provides enough examples for readers to tangibly grasp all of his concepts. I would recommend the book to anyone interested in entrepreneurship, not as a guide, but as a thought-experiment.

 

 

8 thoughts on “Zero to One – A Summary

  1. Great summary! I also read this book over the summer and really enjoyed Theil’s perspective on startups and his advice to the readers. I agree that it was interesting how he emphasized the importance of a company becoming a monopoly because we are commonly taught the negatives of monopolies on the economy instead of the benefits to that specific company. I thought you did a great job capturing Theil’s ideas!

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  2. Sounds like a great read! I really enjoyed reading your summary, and it is great to get that unique perspective from someone as successful as Peter Thiel. I agree with your sentiment about monopolies. From my days in Econ I had never thought of the possibility of them having a positive impact, but you raise a good point, especially with Amazon as they are so consumer-focused.

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  3. Thanks for the summary! I found it really interesting, especially the section on Man vs. Machine. I will definitely read this book as I think it will help me to better understand the companies that we visit or it will least allow me to view them in a different way.

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  4. Fantastic summary! I loved how you included clear lists of each of Thiel’s main points from each section – very easy to follow yet packed with a ton of information. Thiel’s key foundations and list of questions seem like a great place for someone to start when thinking about creating a business. I agree that for a company, being a monopoly is a good thing. As a startup it’s invaluable to be able to test out your idea with real users but without the dangers of competition. I think Thiel’s point about a company aiming to dominate a small market rather than a small part of a larger market is spot on. However, I worry that from the user’s perspective is where the dangers of monopolies arise. Sure Amazon and Google have continually released increasingly innovative products, but Amazon has also destroyed many small businesses and local brick and mortar stores by pricing them out of competition and Google dominates the online advertising space to the point that people have no choice but to use Google AdSense on their websites. The issue lies in what happens once these companies have become full monopolies, once there is no competition at all, will Amazon’s prices continue to be as low? Will Google continue to pay website owners as much if the websites have no other ad suppliers available to put on their sites?

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  5. Side note–really liked the way you put in graphics to illustrate the different concepts of the book. Your pivot on your stance on monopolies is really interesting–and one that I think I would agree to as well. It’s interesting because I’ve actually never even considered companies like Amazon or Google or Apple as monopolies in a negative perspective to begin with and I think your post offered insight on the fact that these companies probably did a lot of damage to smaller firms in this space (like with Amazon and the rise of e-commerce and the effect it had on the brick-and-mortar stores in the retail industry (though I still believe retail is not completely dead as humans are still very much hard-wired to respond to physical stimuli, but we can talk about this another time)) Someone told me that those companies are always perpetual startups in the sense that they are always in a “early growth” stage, constantly innovating, making breakthroughs in a variety of different areas and definitely this aligns with those rules of making a company durable that you listed. If I had time, I would definitely read this book!

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  6. Seems like a great book! I liked how you organized your post keeping it clean and with pictures. Also, it is interesting to see that Thiel thought had the same positive outlook on computers than the author of my book Machine, Platform, and Crowd. In addition, I found very interesting the idea that monopolies also are big innovators. I had a similar preconception that they limited innovation.

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  7. Wonderful book and summary! Your angle on successful businesses/monopolies creating new industries reminds me of Blue Ocean Strategy: focusing on non-customers in uncontested spaces as a means for sustainable innovation, rather than focusing on current customers and defending existing market share.

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  8. Nice treatment of the book. I agree that the defense of monopolies is an interesting angle he takes. I think monopolies are certainly different today than they were 100 years ago (I also read a book on John D. Rockafeller that gave me insights on original monopolies), but I’m not 100% bought into Theil’s optimism either.

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