The international bestseller business book, sporting the subtitle “How to Build the Future”, is recommended reading for startups, entrepreneurs and innovators.
Published: 2014
Genres: Entrepreneur, Startup
Pages: 210
Rating: 4/5
Author: Peter Thiel is a billionaire entrepreneur, turned venture capitalist turned author taught a class on entrepreneurship at Stanford. He started PayPal in 1998, led it as CEO, and took it public in 2002, defining a new era of fast and secure online commerce. Thiel made the first outside investment in Facebook in 2004 and provided early funding for companies such as LinkedIn, Yelp, Yammer and dozens of successful technology startups, many run by former colleagues who have been dubbed the “PayPal Mafia”. He is also one of the partners at Founders Fund, a Silicon Valley venture capital firm has invested in Airbnb, Spotify, Stripe, and SpaceX.
Blake Masters was a student at Stanford Law School in 2012 when his detailed notes on Peter Thiel's class became an internet sensation. Before writing Zero to One with Peter, Blake co-founded Judicata, a legal research technology startup, and worked at Box and Founders Fund.
Zero to One is recommended by my friend as he said it is written by a philosophy view, which splits the book from others. There are some interesting morsels of wisdom and insight to be found, but also a lot of dogmatism and inconsistent information. Particularly, Thiel indicated too many people are doing entrepreneur while, he is famously sponsoring Thiel fellowships to those who drop out of college and start new companies.
This is a very first time I rate 4/5 for the international bestseller and also known as one of the best books on innovation and the startup economy. The impression, the confusion, follow me till the end to see what we can find.
THE IMPRESSION
There is no such thing as luck
It is all about skills and a great team. Alone genius cannot create a startup. Thiel quotes Jack Dorsey, the founder of Twitter who said, “success is never accidental”. A founder must have a long-term view. Steve Jobs designed Apple’s future with a series of ground breaking new products every few years. Also, founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at his company. The chapter “You Are Not A Lottery Ticket” is one of the most interesting parts I have ever read.
There is no formula for innovation
The paradox of teaching entrepreneurship is that such a formula for innovation cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be more innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
It is obvious that copy a model is much more easier than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.
Being unique
Thiel stresses the point that startups aiming for success need to build monopolies, in order to be by far ahead of the competition. The less competition you have to face, the more likely you are to focus on development instead of marketing wars. He defines several “characteristics of monopoly”.
Proprietary technology - is the probably the most important characteristic of a monopoly because it makes your product difficult or impossible to replicate. It should be at least 10 times better than its closest competitors. Anything less will be seen as a marginal improvement.
Network effects - make a product more useful as more people use it, but let’s answer how you create the network in the first place. It is definitely to start with an especially small market. Once you have dominated a single niche, you can start to expand into related broader markets.
Economies of scale - a monopoly gets stronger as it gets bigger because the fixed costs of creating a product can be spread out over great quantities. A good startup should have the potential for great scale built into its first design.
Branding - creating a strong brand is a powerful way to claim a monopoly, however, a strong brand can only be achieved as the byproduct of great work. Apple has strong branding due to its excellence in software, hardware, and operations, not because of other easy to copy properties of the company.
As a conclusion, Thiel then offers seven indicators for successful startups.
Technology: Can you create breakthrough technology?
Timing: Is it the right time to start now?
Monopolies: Are you starting with a big share of a small market?
Team: Do you have the right team?
Sales: Do you have a way to deliver the product?
Future: Will your market be defensible 10-20 years in the future?
Secret: Have you identified a unique opportunity?
There is quite useful advice in this book, ways to look at your startup and confirm or question believes and values. However, some paragraphs could be handled with care and distance.
THE CONFUSION
Monopoly is not the only way
Thiel spends a lot of time in Zero to One to state that competitive markets destroy profits. He believes that only monopolies can be successful. Not “every successful tech business”, but every successful business, period. And so, using the airlines as an example, he asserts that competitive companies cannot possibly make money. Maybe in theory, but not in practice.
Debating with Thiel's statement, Louis Gudema points out a showcase of Starbucks as a true commodity business: selling coffee. It takes just hot water and a few cents of coffee grounds to make coffee. There are countless coffee shops. Bakeries sell coffee. Restaurants sell coffee. People even can make coffee at home for a few cents a cup, or they can pay a bit more for a coffee marker and still make it for far less than the cost of a Starbucks grande size. According to Starbucks 2017 annual report, the company made nearly US$3 billion in profits on more than US$22 billion in sales. So, it is a billion-dollar business, still a big deal.
Another case to show that not every successful business need a monopoly market is Warren Buffett. His investment portfolio is full of profitable companies such as ConocoPhillips, Costco, General Electric, General Motors, Goldman Sachs, IBM, Kraft Foods, MasterCard, Proctor & Gamble, and Verizon, most of which are in highly competitive industries. Whether you use the broad industry list from Forbes, therefore, you find that the most profitable industries are all competitive.
Competition never ends
Thiel proposes a curious idea of “the last mover advantage” as it is much better to be the last mover - that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. Well, maybe that kind of monopoly is possible for a short time, in a very few cases, but as the cost of developing and prototyping new technologies plummet, and technical education spreads around the world, that kind of permanent competitive advantage is less and less likely.
Thiel is quite obsessed with the idea of “never competing”, but it is uncertain that whether it could be applicable in all situations. For example, instead of admitting Nokia and Blackberry had the mobile phone market locked up in 2005 and decided to not develop a smartphone, Steve Jobs of Apple did develop the iPhone. Yet Apple could not grab a monopoly. Google came in and Android now has about 80% of the global smartphone OS market. Hence, not only are product lifespans shortening, the lifespans of entire companies are shortening, too.
“Competitive advantage is fleeting. Competition never ends. There is no last mover.”
FINAL RECOMMENDATION
All in all, the most important message to take away from Zero to One is think for yourself. Do not get caught up in culture or movements or society’s expectations of how you should act. Instead of offering a guaranteed formula for success, Thiel suggests a contrarian philosophy *my friend got right* for thinking about technology and the future and how to frame the right mindset to build a business from first principles.
Even my gripes about the book are not particularly frustrating, Zero to One is well-written and definitely worth reading. The style is clear and straightforward. Thiel is a businessman and does not waste time mincing words. That makes this book a joy to read. I selected a couple ideas that caught my fancy above, but there is plenty of other thought-provoking ideas to dwell on here. If you are interested in starting a technology business, this is probably one of the best books ever written on the subject.
Thanks for your reading,
LbL
I got a chance to read this book when it first came out. Reading Zero to One was very entertaining because Thiel is a contrarian. I also like his straightforward writing style and I think it makes him more trustworthy. Reading his book is almost 180 degree from reading a book written by a Nobel Price winning academic professor. One of the key takeaways for me was the question “What important truth do very few agree with you on?” – Still asking myself this question from time to time.
Luck. I deeply agree that success is never accidental, whether building a global company or simply passing an exam. I’ve heard many people say “everything happens because it’s already predetermined.” I…