Reading Frenzy: Zero to One by Peter Thiel
A series where we compress interesting, informative and ‘cult’ books into one easily digestible post
In our very first “Reading Frenzy”, we are going to compress legendary investor Peter Thiel’s now equally legendary book and distill some of its core ideas into bite-sized consumables. Given its almost cult-like popularity amongst investors and founders alike, this was an obvious choice as our first pick. Hopefully, by the end of this post, you will be able to impress your fellow VCs with insights and odd references to the book without ever reading it.
To promote the book, Peter Thiel sent out his first ever tweet on September 8, 2014, from a Twitter account that had been dormant for years and continues to remain so since that day. Stitched together from the lecture notes of a course Thiel taught at Stanford in 2012, the book begins with an almost prophetic line:
“Every moment in business happens only once.”
Meaning? If you only imitate what already exists (ideas, companies, businesses), you are merely replicating, not creating. If you are building the next Facebook, you haven’t learnt from Facebook. Doing what someone else already knows how to do takes the world from 1 to n, by adding more of something which exists. But when you do something completely new, you go from 0 to 1. The act and the moment of creation is singular. The result? Something fresh, something strange. And THIS, is the idea that anchors the book. Zero to One is about how to build companies that create NEW things.
Applying this at the macro level yields two abstracts: (1) Globalisation is horizontal — by replication — progress. E.g. China copies what is available in the developed world and builds it cheaper (2) Technology is vertical — by creation — progress. E.g. Silicon Valley has always been at the cutting-edge of new technology thus cementing USA’s place as the de facto leader of the developed world.
“What important truth do very few people agree with you on?” had once been a favourite question during VC interviews as this is what Thiel would ask prospective applicants. The objective? To understand how a person sees the future. Thiel’s own answer is that most people think the future will be defined by globalization, but the truth is that technology matters more. In a world of scarce resources, globalization and rapid replication without any new technology for incremental improvement or creation is inherently unsustainable. Thinking as a contrarian allows you to see what others may not, avoiding the madness of crowds. It also allows for the unlocking of new ideas and newer unknowns. A business version of this question, the one that every investor & entrepreneur must thus ask themselves is “What valuable company is nobody building?” All of today’s most famous and familiar ideas were once unknown and unsuspected. The ones who saw what no one else could see, unlocked the secrets to the world.
The Dotcom Bust and Lessons from PayPal
In the aftermath of the dotcom bust, the key learnings for those fortunate enough to be left standing in Silicon Valley were considered to be:
Make Incremental Advances — Small, incremental steps are the only safe path forward
Stay Lean, Stay Flexible — “Iterate” and “pivot” as necessary but do it quickly
Improve on the Competition — The only way to know you have a real business is to start with an already existing customer and then incrementally improving upon the same
Focus on Product, Not Sales — Good products, like good ideas, sell themselves
But, the contrarian view to the above, the one Thiel himself learnt while at PayPal, would be something akin to:
Boldness (bold leaps) > Triviality (small, incremental, safe)
Bad plans (some action) > No plans (inaction)
Sales matters just as much as product — more so in today’s world of shrinking attention spans than ever before
The above may just be the steps required in building a great business monopoly. Why a monopoly and not merely a great business? Because all great businesses are eventually monopolies.
Disguise Your Monopoly AKA All True Monopolists are Liars!
Any company that says it is in a league of its own, probably isn’t. Non-monopolists exaggerate their distinction by defining their market as narrowly as possible to showcase their supposed dominance. This is flawed and dangerous. Competitive reality should be one of the fundamental considerations of any business if it is to survive.
Contrarian View (or is it?): Bragging about your monopoly invites being audited, scrutinized, and attacked. If you wish to enjoy your profits unmolested, conceal the monopoly by exaggerating the power of your (non-existent) competition. A true monopoly like Google pretends it is a small fish in a big pond when we all know the opposite if true.
“We face an extremely competitive landscape in which consumers have a multitude of options to access information.” — Google chairman Eric Schmidt’s testimony at a 2011 congressional hearing.
So strive for monopoly — it is the end state for every truly successful business.
What then, are the building blocks of a monopoly?
Proprietary Technology — it makes your product/service difficult or impossible to replicate (e.g. Google’s search algorithm)
Network Effects — A product becomes more useful as more people use it thus exponentially increasing its benefits every time (e.g. Amazon)
Economies of Scale — The fixed costs of creating a product or providing a service can be spread out over ever greater quantities of sales (e.g. Software companies)
Branding — Some of the greatest monopolies are those which control branding such that a perception of greatness is created in the minds of the consumer (e.g. Apple)
Okay, but how do you go about actually building a monopoly?
Start Small, Monopolize & Scale Up — Every startup should begin with a very small market that it can dominate. The trick is to keep expanding upwards and outwards into related and adjacent markets until you can go no further
Do Not “Disrupt” — VCs/Founders are obsessed with disruption. Disrupting, just like screaming you’re a monopoly, attracts the wrong type of attention. Expanding the market rather than going after competition / incumbents will always work better as the net effect is positive for all
[Venture Monk Insert: Neobanks in India are a great example of “collaborate not disrupt.” They are adding co-branded and co-created digital layers on top of existing bank infrastructure that provide a better experience for the bank’s customers. Everybody wins!]
The Mechanics of a Mafia —Asking the Right Questions
The infamous “PayPal Mafia” were a group of former PayPal employees / founders who have since founded and developed additional successful technology companies. What is the one thing they all have in common besides working with Thiel at PayPal? Their companies all answered the fundamental questions necessary for building a great business. What are those questions?
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?
Did the ‘Mafia’ get all of it right? Decide for yourself. These are the companies they went on to build — Tesla, SpaceX, LinkedIn, Palantir Technologies, Affirm, Slide, Kiva, Yammer, Yelp, and YouTube.
“The clearest way to make a 10x improvement is to invent something completely new.”
And that’s it! We hope you enjoyed our very first Reading Frenzy. Admittedly, this is our interpretation of ZT1 and thus subject to some bias which also shows in the parts we did not include for brevity. We would recommend you go ahead and still read this book, especially if you are an entrepreneur. It has interesting frameworks that can be applied to business and asks enough questions to help you to think differently. Even if you aren’t an entrepreneur, the book’s insights could just as easily be applied to everyday life. Fair warning - it may at times feel disjointed and chaotic which could be a result of its genesis as a series of lectures rather an actual book. But then again, this article will always be there to help clear the clutter. Now go forth and build!