Peter Thiel’s “Zero to One”
A Powerful Read for Anyone Interested in Innovation, Entrepreneurship, and Tech
I finally got round to reading this bestseller on startups and technology by Peter Thiel, the founder of PayPal and a key early investor in such transformational firms as Facebook and SpaceX. While it was published in 2012, the book’s many insights have lost none of their relevance: mandatory reading for anyone interested in entrepreneurship, innovation, and futurism!
Drawing from numerous recent examples—the Internet and cleantech bubbles, as against the success of his own projects and those of Apple and Tesla Motors—Thiel is particularly enlightening regarding Silicon Valley firms’ growth dynamics from humble startup to global tech giant.
In short, the most successful startups leverage technology to create what Thiel calls “creative monopolies.” A decisive tech lead, economies of scale, branding, and/or (probably most decisive) network effects enable tech firms as diverse as PayPal, Microsoft, Apple, or Twitter to achieve quasi-monopoly status, defined as “the kind of company that’s so good at what it does that no other firm can offer a close substitute” (p. 25).
Once you are entrenched, it’s very hard for new challengers to break in: why join a social media or a payment processor, for example, if no one else is on it? While in the early days information technology and the Internet were often hailed as democratizing and decentralizing forces, there are also obvious monopolistic and centralizing tendencies.
Your “creative monopoly” frees you from the relentless price competition of the market at large, rakes in profits, and thereby enables you to invest more in R&D for the next technological breakthroughs, not to mention buy-up all the promising startups (including European ones). “Creative monopoly” status can last at least until the company gets too cocky: when it gets complacent and ceases to innovate (as happened to Apple until Steve Jobs return in 1997) or the government’s competition authorities crack down on you (as happened to Microsoft in the early 2000s).
Monopolies do not need to be large. On the contrary, it is better to gain monopoly status in a small but critical segment of the market, then expand to adjacent markets from there, rather than scatter your efforts. Mark Zuckerberg first concentrated Facebook’s expansion on Harvard alone (where each joiner could find all his schoolmates), then to other universities, then to the world at large. PayPal first focused on eBay vendors and users, Amazon on books, for each of which they were particularly well-suited, before generalizing. A monopoly in a secure, small, but profitable market can serve as the critical basis further expansion.
Thiel does not mess around. He is a ferocious enemy of fuzzy thinking (“indefinite”) and the fatalistic belief that randomness (“chance”) defines our future. He believes in personality: that character profoundly shapes one’s destiny; hence why great business founders tend to be strange characters.
Above all Thiel wants entrepreneurs to be strategic and definite (that is, specific and committed): develop a unique plan for the real economy by rigorously identifying the crucial conditions—decision-points, critical mass thresholds—to make it a success. Just about everything follows a Power Law: the most important things you need to focus on, the decision-points in your life and your business, tend to be fewest in number. The 80/20 rule is your friend. Strategic thinking ruthlessly focuses on the upcoming critical decision-points and cuts out both noise and inertia (areas of diminishing returns).
The book is packed with trenchant criticism of conventional wisdom (not least on the education system) and practical insights on the workings of different organizations (startups, NGOs…), building a winning team, different sales strategies (both mass market and to mega-clients like governments), the importance of one’s founding narrative and mission, and much else.
This is also a challenging book for Europeans, with much food for thought for both European entrepreneurs and officials (especially those working on innovation, competition, and tech regulation). We have Airbus in aerospace, but how, for example, can we create an Airbus for IT and AI? While Zero to One has no direct answers, Thiel provides insights both necessary and stimulating to understand and, better, co-create our technological future.
A few quotes:
Brilliant thinking is rare, but courage is in even shorter supply than genius. (p. 5)
In the most dysfunctional organizations, signaling that work is being done becomes a better strategy for career advancement than actually doing work (if this describes your company, you should quit now). (p. 10)
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think . . . that is what a startup has to do: question received ideas and rethink business from scratch. (p. 10-11)
The business version of our contrarian question is: what valuable company is nobody building? (p. 23)
[T]he world we live in is dynamic: it’s possible to invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. . . . the history of progress is a history of better monopoly businesses replacing incumbents.” (p. 32)
From the Renaissance and the Enlightenment to the mid-20th century, luck was something to be mastered, dominated, and controlled; everyone agreed that you should do what you could, not focus on what you couldn’t. Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances. . . . Strong men believe in cause and effect.” . . . No one pretended that misfortune didn’t exist, but prior generations believed in making their own luck by working hard.
If you believe your life is mainly a matter of chance, why read this book? Learning about startups is worthless if you’re just reading stories about people who won the lottery. Slot Machines for Dummies can purport to tell you which kind of rabbit’s foot to rub or how to tell which machines are “hot,” but it can’t tell you how to win. (pp. 60-61)
A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket. (p. 81)
Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know. So who do you tell? Whoever you need to, and no more. In practice, there’s always a golden mean between telling nobody and telling everybody—and that’s a company. (p. 106)
A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. (pp. 113-14)
Selling your company to the media is a necessary part of selling it to everyone else. Nerds who instinctively mistrust the media often make the mistake of trying to ignore it. (p. 138)
Indefinite fears about the far future shouldn’t stop us from making definite plans today. (p. 150)
An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale. (p. 170)
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 single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom (p. 189)