The incredibly popular book on startups, innovation and progress by entrepreneur and investor Peter Thiel and Blake Masters. In Zero to One the authors describe their views on what makes startups work and become successful, why monopolies can be good, and what the different scenarios for humanity are when it comes to technology and the future. Calling it just a business book is not entirely accurate – it’s partly a political manifesto as well. So even if you’re not an entrepreneur or an investor Zero to One is well worth a read.
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Book Summary & Notes
All text between quotation marks is taken directly from the book.
Startups & Creation
“Of course, it’s easier to copy a model 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 art of creation is singular, as is the moment of creation, and the result is something fresh and strange.”
Why do startups work so well when it comes to developing new things? From a negative angle you could say it’s difficult to do things in a big organizations (due to bureaucracy and risk-aversion, for example) as well as just by yourself (you can write a book, but you can’t change an industry). To put it simply: you need other people to do things, but you also need to be small enough that doing things is still possible. From a positive angle you could say that a startup is “the largest group of people you can convince of a plan to build a different future”.
“Whenever an entrepreneur asks me to invest in his company, I ask him how much he intends to pay himself. A company does better the less it pays the CEO”
Working with people (and yourself)
One of the most important decisions of a startup up is whom to start it with. Usually every relationship starts optimistically, and most people don’t consider what could happen if things go wrong. But when founders develop issues in their relationship it’s the company as a whole that suffers.
A general rule the authors give is that everyone involved in the company should be involved full-time. If a person doesn’t own stock in the company, or gets a salary, then he or she is misaligned – maybe not on the short-term, but at least when it comes to the future. (This rule doesn’t always apply, take accountants and lawyers, for example.) For the same reason remote working should also be avoided, because misalignments can happen when people are not in the same place, day in, day out.
“We didn’t assemble a mafia [“the PayPal mafia”] by sorting through résumés and simply hiring the most talented people. I had seen the mixed results of that approach firsthand when I worked at a New York law firm. The lawyers I worked with ran a valuable business, and they were impressive individuals one by one. But the relationships between them were oddly thin. They spent all day together, but few of them seemed to have much to say to each other outside the office. Why work with a group of people who don’t even like each other? Many seem to think it’s a sacrifice necessary for making money. But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational. Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well – even in purely financial terms.”
“Above all, don’t overestimate your own power as an individual. 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. That we need individual founders in all their peculiarity does not mean that we are called to worship Ayn Randian “prime movers” who claim to be independent of everybody around them. In this respect Rand was a merely half-great writer: her villains were real, but her heroes were fake. There is no Galt’s Gulch. There is no secession from society. To believe yourself invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd’s worship – or jeering – for the truth. 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.”
Competition and Monopolies
“Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premise on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.”
Are monopolies bad? Yes, if they are in static environments. But monopolies can be good in dynamic environments: cases were the creative monopolist creates new categories, invents new products and makes better things.
A monopoly is a condition for a successful business – outside of economic theory, every firm needs to do something that others cannot. That is what allows it to be successful.
“Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. 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.”
Every monopoly is thus unique, but they usually involve things like strong branding, proprietary technology, network effects, and/or economies of scale.
Since monopolies mean dominating a market, and since startups are very small, the startup should always begin with a tiny market. The suggestion is to start as small as you can, because that way you can dominate the market (which, obviously, is impossible for bigger markets).
So what is the perfect target market for a startup? It should be a small group of concentrated people/businesses, that is not served by competitors (or by just a few). Bigger markets are a bad idea, especially if they already have competitive firms.
“This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market. In practice, a large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%. And even if you do succeed in gaining a small foothold, you’ll have to be satisfied with keeping the lights on: cut-throat competition means your profits will be zero.”
There is also a warning for disruption: due to its very nature, disruption means fighting other companies in more mature (adjacent) markets. It’s better to avoid competition and, as a result, disruption.
Views on the future can be divided into definite and indefinite forms. If you see the future as something that is definite, you will try to work on it and shape it. But if you view it as indefinite, or random, you will not try do so so.
Thiel suggests that a big issue nowadays is that people have an indefinite attitude towards the future. Without concrete plans of what they want to achieve, they default to creating a portfolio of options. Meaning: extracurricular activities, expanding résumés, experiences in a wide array of jobs. Whatever the future may bring, this type of person or student is ready to meet it.
In contrast there is the person who has a definite view. As Thiel describes it: “Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive – to be a monopoly of one.” Generally speaking, this is not what most people are pursuing nowadays.
Related to this, the authors stress that life is not a portfolio. Not everything cannot be diversified, especially when it comes to you yourself. It’s impossible to be fully invested in multiple things (such as running multiple companies simultaneously) and hope that one of them pays off in the end.
“An individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve.”
But our education system is often the exact opposite: it teaches generic knowledge, students are encouraged to focus on “hedging” their futures with extracurricular activities and skills. What is missing is focus: it matters what you do, what you’re good at and what is valuable (in the future).
Every good idea was once a secret. And every successful company probably started out with a secret: something valuable that they could monopolize that no one was doing yet. But most people are not looking for secrets, or belief they simply don’t exist any more.
Why do we believe there are no secrets left? It could be due to geography: no more blank, unexplored places on maps. But there are also four social trends: incrementalism (the belief that we need to do things one step at a time), risk aversion (people don’t pursue secrets because they are afraid of being wrong), complacency (banking on previous successes, instead of thinking about new things), and ‘flatness’ (people see the world as homogeneous and competitive; if it possible to discover something new, it must already have been found by better, more creative people).
How do you find secrets? “There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So 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 about people are underappreciated. And by asking what people are not allowed to say, or looking at places where no one else is looking you can discover them. A good place to start is universities: if knowledge is institutionalized and there are courses on it, then it will be difficult to discover new secrets. The trick is to look for fields that matter, but that haven’t been institutionalized yet.
Man, machine, and data
“The stark differences between man and machine mean that gains from working with computers are much higher than gains from trade with other people. We don’t trade with computers any more than we trade with livestock or lamps. And that’s the point: computers are tools, not rivals.”
“Big data is usually dumb data. Computers can find patterns that elude humans, but they don’t know how to compare patterns from different sources or how to interpret complex behaviors. Actionable insights only come from a human analyst […]. We have let ourselves become enchanted by big data only because we exoticize technology. We’re impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the human contribution makes them less uncanny.”
The 7 questions a business plan must answer
- “The Engineering Question: Can you create breakthrough technology instead of incremental improvements?”
- “The Timing Question: Is now the right time to start your particular business?”
- “The Monopoly Question: Are you starting with a big share of a small market?”
- “The People Question: Do you have the right team?”
- “The Distribution Question: Do you have a way to not just create but deliver your product?”
- “The Durability Question: Will your market position be defensible 10 and 20 years into the future?”
- “The Secret Question: Have you identified a unique opportunity that others don’t see?”
“Doing something different is what’s truly good for society – and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.”
Interested in Zero to One? Get the book on Amazon.