Book Notes: Zero to One by Peter Thiel

Book Notes: Zero to One by Peter Thiel

Book Notes: Zero to One by Peter Thiel

I recently finished Thiel’s book and overall thought it was a great read. Unlike most of the tactical step by step business books that have been released lately, Thiel takes a higher level approach, questioning common business fads and conventional buzz-word thinking that’s been filling the markets with copy-cat unicorn wannabes.

The main premise of the book is to think bigger overall. There is an observed power law in society and aligning our thinking to the power law will allow the human race, as a whole, to shift from the mentality of expecting good things to happen to us to achieving the good things that we want through coordinated planning and execution.

Chapter 1: The Challenge Of The Future

The chapter starts with a discussion around Peter’s favorite interview question:

What important truth do very few people agree with you on?

He says the question is important because it correlates with the future.

“What makes the future distinctive and important isn’t that it hasn’t happened yet, but rather that it will be a time when the world looks different from today”.

Thiel points out that most people who answer the question do so in the wrong way. Most answers state something that people already agree with or takes one side in a familiar debate, but is still widely agreed upon. When this question is answered correctly, it reflects the future to come. As a product person, when an important truth that few people agree with is discovered, a new unmet need is discovered with it. For example, before computers were personalized, everybody thought that computers were strictly for academia or larger scale number crunching. It wasn’t feasible to think of a time when everyone would own one due to the high costs of acquiring a computer and the technical expertise needed to build one. Homebrew computer clubs and enthusiasts were the few people that saw the truth that a personalized computer was possible.

technology vs globalization - zero to one

Vertical / Intensive progress vs. Horizontal / Extensive progress

Next, Thiel differentiates and explains the terms intensive and extensive progress. His simplification of each describes horizontal (extensive) progress as globalization, copying things that work, and vertical (intensive) progress as technology, doing new things. The gist of the differentiation of the terms is that both types of progress are needed. As globalization continues, it will be unsustainable unless technology is able to growth with it.

Chapter 2: Party Like It’s 1999

The dot-com crash caused many people to adopt the following ways of thinking:

  1. Make incremental advances
  2. Stay lean and flexible
  3. Improve on the competition
  4. Focus on product, not sales

Thiel points out that the opposites are probably more valid:

  1. It is better to risk boldness than triviality.
  2. A bad plan is better than no plan.
  3. Competitive markets destroy profits.
  4. Sales matters just as much as product.

Chapter 3: All Happy Companies Are Different

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.

Thiel then proceeds to frame the contrarian question from the business perspective:

What valuable company is nobody building?

Although the question may look simple with all of the startup unicorns that have been saturating the market, Thiel points out that the meaning of valuable company can be deceptive. For a company to be valuable, it must not only create value but be able to capture that value as well. To do this, entrepreneurs must build differentiated businesses that won’t become a commodity business: a monopoly not a perfect competition business.

 firms are similar
firms are different - zero to one

Perfect competition firms disguise themselves as monopolies by selling differentiated features but ultimately competing on price. Monopolies disguise themselves as a small revenue stream in the larger ocean market while commanding high profit positions that can be sustained over time.

Chapter 4: The Ideology Of Competition

Competition is an ideology that is preached to us. Society teaches us from the time we enter school that it’s important to get a large slice of the pie instead of finding solutions to grow the pie itself. Monopolies grow current pies or build new ones. Perfect competition finds new ways of slicing the current pie.

Thiel does acknowledge that it is unrealistic to never have to compete. My favorite of the book quote was:

Sometimes you do have to fight. Where that’s true, you should fight and win. There is no middle ground: either don’t throw any punches, or strike hard and end it quickly.

Chapter 5: Last Mover Advantage

For a company to be valuable it must grow and endure, but many entrepreneurs focus on short-term growth.

Many companies want that exciting MAU hockey stick growth but fail to answer the question of how they will sustain the business and profitability over the long haul. Thiel states that the common wisdom of being the first mover is the most important way to capture a market is false and that what you should aim for is to be the last mover. Although Yahoo entered the market before Google, it was Google that essentially became the “last mover” by creating the last great development in the market that will allow it to enjoy profits over the long run.

Characteristics of a monopoly:

  1. Proprietary technology
  2. Network effects
  3. Economies of scale
  4. Branding

Building a Monopoly:

  1. Start small and monopolize
  2. Scale up
  3. Don’t disrupt
  4. The last will be first

Chapter 6: You Are Not A Lottery Ticket

Thiel tackles the question of whether success comes from luck or skill.

Can you control your future?

Thiel argues that you can expect the future to be better or worse than the present and based on this assumption the author draws the following graph to represent how societies shape our thoughts to the view of the future:

world view of future - zero to one

  • Indefinite pessimist: Views the future as bleak but has no idea what to do about it (Europe since 1970s).
  • Definite pessimist: The future is known, but since it will be bleak, preparation is needed (Chinese view growth as not sustainable).
  • Definite optimist: Future will be better if panning and working is done to make it better (US pre 1970s executing on big plans such as Empire state building and Panama canal).
  • Indefinite optimist: Future will be better but not sure how to achieve it (new generations expect that future will automatically get better).

Thiel closes by stating that we have to find our way back to a definite future. We’re not a lottery ticket and we can be process oriented to plan our own futures.

Chapter 7: Follow The Money

The most important things are singular: Follow the power law (Pareto’s 80/20 principle). 20% of actions lead to 80% of the results. Prioritize correctly and remain focused on what actually matters.

In a power law world, you can’t afford not to think hard about where your actions will fall on the curve.

Chapter 8: Secrets

Secrets will give you an edge.

There are two types of secrets:

  1. Secrets of nature – exist all around us and are found by studying an undiscovered aspect of the physical world.
  2. Secrets of people – Things people don’t know about themselves or that they are trying to hide.

When thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?

Secrets - zero to one.png

Thiel recommends that when secrets are found, share them with only those who need to know.

Chapter 9: Foundations

Critical aspects to a strong foundation:

  1. Founding Matrimony – who is part of it?
  2. Ownership, Possession, and Control – who owns which part?
  3. On The Bus of Off The Bus – People are either full time or not
  4. Cash Is Not King – Cash causes short term thinking
  5. Vested Interests – Equity offers the best way for a founder to keep everyone broadly aligned.

Ownership, Foundation and control

  • Ownership = who legally owns a company’s equity? (founders, employees, investors)
  • Possession = who actually runs the company on a daily basis? (managers)
  • Control = who formally governs the company affairs? (board of directors which includes founders)

Chapter 10: The Mechanics of Mafia

No company has a culture. Every company is a culture.

zero to one cult.png

The best startups are considered a slightly less extreme version of a cult. Hire people who are different in the same way and want to be around eachother.

Chapter 11: If You Build It, Will They Come?

Short answer: no.

If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business – no mater how good the product

How To Sell A Product

Keep Customer Lifetime Value (CLV) higher than the Customer Acquire Cost (CAC). In general, the more expensive the product, the larger the sales costs and more personalized attention is required for each sale.

how to sell your product - zero to one

Chapter 12: Man and Machine

As we find new ways to use computers, they won’t just get better at the kind of things people already do; they’ll help us to do what was previously unimaginable.

future of work - zero to one

Globalization means substitution while technology means finding augmenting humans with complementary resources and skills.

Chapter 13: Seeing Green

7 questions every business should answer:

  1. The Engineering question: Can you create proprietary technology that is 10x better?
  2. The Timing question: Is now the right time to start?
  3. The Monopoly question: Can you dominate the market with your proprietary technology?
  4. The People question: Do you have the right people in your team?
  5. The Distribution question: Do you have a way to successfully deliver your product?
  6. The Durability question: What will the market look like in 10-20 years and will my company fit in?
  7. The Secret question: Do you have a natural or people secret that will give you an advantage?

Cleantech was unable to successfully answer the 7 questions, which led to many companies failing.

Chapter 14: The Founder’s Paradox

Founders are important not because they are the only ones who’s work has value, but rather because a great founder can bring out the best work from everybody at his company

Normal distribution of traits vs Founders distribution of traits

distribution of traits normal people - zero to onedistribution of traits founders - zero to one

Founders usually start out as different people but are often exaggerated by themselves or others over time.

Conclusion: Stagnation or Singularity?

Nothing or something, it’s up to us.

The essential first step is to think for yourself. Only by seeing our world anew, as fresh and as strange as it was to the ancients who saw it at first, can we both re-create it and preserve it for the future.

Four scenarios for the future:

  1. Recurrent collapse – cyclical highs and lows
  2. Plateau
  3. Extinction
  4. Takeoff – acceleration to a much better future

It’s important to seize the unique opportunities we have to do new things in our own working lives.

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