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

Summary

Zero to One is a book by Peter Thiel, a co-founder of PayPal and one of Facebook’s first big investors. The overall theme of the book is that most new business ideas take society from 1 to n, meaning that people innovate based on a previously created technology. In this book, Thiel explains new creations as going from 0 to 1.  Thiel discusses general themes that are important for creating new ideas but points out that when it comes to entrepreneurship, there is no formula. That’s what makes it entrepreneurship.

Image result for peter thiel

The essence of the book is Thiel trying to get at the heart of the following question: what valuable company is nobody building? Thiel attempts to approach an answer to this unanswerable question by discussing things such as last mover advantage, secrets within companies, different types of competition, and building a startup with a strong foundation.

Thiel makes the controversial claim that competition and capitalism are at a stark contrast. This is so because capitalism is designed for firms to generate profits while competition is designed to lower prices and thus reduce profits. This leads to the conclusion that entrepreneurs should thus be striving to create a monopoly, because that will erase all of the price-lowering competition.

After monopoly, the next big theme that is explored by Thiel is finding a niche vs. diversification. If you find a niche in life, you will avoid competition. If you diversify, you expand into areas in which you are more prone to competition and its inherent profit eroding.

Each section looks at this question of how to create a new idea out of the blue from a different perspective. The one area that I found particularly interesting was called “Following the Money” which expanded on the discussion of companies establishing themselves to the venture capital side of the equation. This section stood out to me given how many companies that we will be visiting started from venture capital funding.

In-depth: Following the Money

In this section, Thiel begins with a discussion of the how power in nature concentrates so that roughly 80% of an output comes from just 20% of all input. An example that may explain this more clearly was an observation by Italian economist Vlifredo Paredo that 80% of all land in Italy was owned by only 20% of all people.

He then relates this law back to venture capital, in which the percentage of companies that succeed is small. Yes, most startups are total failures. Thus, this creates a predicament for venture capital portfolios, because if venture capitalists invest relatively evenly across a portfolio, then the small percentage of good companies may not even make up for the massive investment in all of those failing companies.

The importance of VC funding is even more striking when acknowledging the following fact: “Venture-backed companies create 11% of all private sector jobs” and generate revenues that are equivalent to 21% of the entire United States GDP (89-90). This relates back to the power law when taking into account that the top 12 technology companies, that indeed were all venture-funded, are worth more than all other tech companies combined.

The whole point of this chapter is to show that the contrast between finding a niche and diversification relates to the funding of companies as well, as venture capitalists face the power rule in the same way that individuals and entrepreneurs have to either focus their resources on one career path or multiple.

My Review

Overall, I found this book to be very entertaining, especially at my current stage of life in which I am facing the dilemma of which fields I should put all of my time into studying. The fact that Thiel made this book a discussion on startups and made it easy to understand by connecting all facets of life to the principles faced by startups made this book very relatable. Each topic seemed connected even when they appeared to be talking about something totally different. The fact that Thiel has had such success in technology investing makes his claims even more credible, given his involvement in PayPal, Facebook, and SpaceX. Overall, I found Thiel’s focus on technology companies to be the most fascinating part, since he establishes early on that man is unique in its ability to improve their capabilities through technology.

The writing in this book is easy to understand. Even when Thiel begins discussing things in terms of economist and venture capitalist jargon, he makes it easy to understand through real life examples, such as the aforementioned example of the Italian land dilemma in the power law example, as well as graphs and diagrams.

I would recommend it to others if they have an interest in gaining a more in-depth explanation on the odds of startups developing into a success and the thought process a successful entrepreneur must take in order to find a niche. The interesting thing about this book is that this book can also be relevant to someone that is trying to navigate career choice options and college major decisions. The fact that he discusses these things in the context of technology startups provides for a unique set of analogies that will certainly appeal to a wide array of readers.

3 thoughts on “Book Summary- Zero to One: Notes on Startups, or How to Build the Future

  1. Hi Tom, very nice review of the book! Among all of the topics that we are going to cover in this class, entrepreneurship and venture capital are the two topics that I have the least exposure to, so your book review was very interesting to read. The law of 20%/80% was particularly intriguing and I can’t wait to learn more about those two topics in class. I also bought this book so I can’t wait to read it and also learn more about it in Wednesday’s class!

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  2. Hey Tom! Great review, I felt that the Thiel’s ideas have challenged my original way of thinking on these topics and I’d like to read more about them! First, I found it fascinating how he describes new creations as going from 0 to 1, like in binary, as opposed to 1 to n and I wonder how he came up with this mindset. In addition, I was a little surprised that Thiel mentioned that entrepreneurs should be striving for a monopoly. In the US, we’ve always been told that competition is good and that monopolies aren’t good and we have anti-trust laws to prevent monopolies taking too much of the market. I suppose it’s these kinds of non-conventional ways of thinking that make Thiel and other entrepreneurs successful.

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  3. Great review Tom!! A lot of people have recommended this book to me, so I am planning to read it soon! I enjoyed the statistics you included about the impact venture capital funding has had. I loved the lecture that Professor Doyle gave on VC, and I want to learn more about how venture capitalists help startups become successful.

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