Zero to One
Author: Peter Thiel
Published: 2014
About: This book is about how to build companies that create new things.
The Challenge of the Future
Book opens up with a thought-provoking question: “What important truth do very few people agree with you on?” A good answer takes the following form: “Most people believe in x, but the truth is opposite of x.”
The answers to this question are the closest we can get to looking into future, since the future
- is going to be different
- must be rooted in today’s world.
There are two forms of future of progress:
- horizontal progress
- vertical progress.
Horizontal progress means copying things that work - going from 1 to n. Vertical progress means doing new things - going from 0 to 1 (hence, the name of the book).
Thiel’s answer to the contrarian question is that most people think the future of the world will be defined by horizontal progress (globalization), but the truth is that technology matters more.
Party Like It's 1999
To further argument on his answer to the contrarian question, Thiel uses the internet craze of the ’90s as an example. By deconstructing the initial question into parts, he asks: what does everybody agree on?
He takes following proposition: companies exist to make money, not to lose it. He argues that this proposition was challenged during the mentioned period when no loss was too big to be described as an investment based on the financial metrics such as page views rather than profit.
Following the burst of the dot-com bubble, entrepreneurs learned four big lessons:
- Make incremental advances.
- Stay lean and flexible.
- Improve on the competition.
- Focus on product, not sales.
Thiel argues that these principles have become dogma in the startup world and that the opposite ones are probably more correct:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matters just as much as product.
All Happy Companies Are Different
The business version of the contrarian question is: what valuable company is nobody building? Emphasizing on not just creating a value, but also capturing some of the value created, Thiel compares U.S. airline companies with Google. The airline companies compete with each other, while Google stands alone.
He uses these two extremes to make an argument for monopoly against perfect competition. Under perfect competition, in the long run no company makes an economic profit. Thiel uses Google as an example of a company that’s so good at what it does that no other firm can offer a close substitute, allowing Google to maximize its profits. Google is an example of a company that went from 0 to 1.
The ultimate advice here is if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
In the wild, both monopolists and non-monopolists have an incentive to lie about their actual market positioning. Monopolists are aware that bragging about their great monopoly invites being audited, so they lie to protect themselves. Non-monopolists tend to describe their market too narrowly to understate the scale of the competition.