Zero to One by Peter Thiel, summary & review
We are going to discuss the book and dissect ideas which Peter Thiel brought up from lectures he gave at Stanford University.
'Zero to One by Peter Thiel, summary & review'
Zero to One by Peter Thiel, summary & review
Zero to One: Notes on Startups, or How to Build the Future is a book where its author, Peter Thiel, shares his thoughts on how to start a business that will change your life for the better. However, there are no recipes. According to Thiel they don’t even exist and his book teaches something much more important — critical thinking and ability to see what others don’t.
Real entrepreneurs are not copycats but genuine creators and inventors. Those who make the step from zero to one.
What is this book about?
It is a concentrate of all lectures Thiel gave in 2012 on the subject of startups. It is a book on how to use your brain, think creatively, find your own path, however it gives no step-by-step instructions. This book is of great value not for entrepreneurs only, but for every person who is interested in history, philosophy and the future of humanity.
Peter Thiel is an American entrepreneur and investor of German descent. He is the first external investor of Facebook. National master at chess in his teenage years, Stanford graduate on Philosophy and Human Rights, Thiel spent a number of years working as a judicial assistant and as a trader, before he found his place in the world of entrepreneurship. In 1998 he was to become one of the founders of PayPal and later he used his venture fund Founders Fund to invest in numerous projects such as LinkedIn, Quora, Yelp, Palantir, etc.
Peter Thiel will teach you how to think on your own, seek and find opportunities nobody sees and be independent. “How to Build the Future” is more of a bait, because the book contains no instructions for success rather than valuable lessons.
That’s how Peter Thiel describes the goal behind his Stanford course:
“Humanities majors may well learn a great deal about the world. But they don’t really learn career skills through their studies. Engineering majors, conversely, learn in great technical detail. But they might not learn why, how, or where they should apply their skills in the workforce. The best students, workers, and thinkers will integrate these questions into a cohesive narrative. This course aims to facilitate that process”.
That is exactly what “From Zero to One” does.
“From Zero to One”: meaning behind the title
The step from zero to one is a step from nothing to something, from inactivity to creativity. The step that creates new devices, new pieces of art, new unique enterprises, pushes technological process and social evolution. Most companies copy and modify what already exists. Some can’t recognize opportunities, some lack resources but mostly they just take the easy road of reusing and reproducing. Thiel calls this a process of horizontal expansion, globalisation — a process of endless reiteration and reproduction of the same technology over and over again.
According to Thiel, you learned nothing from famous entrepreneurs if you copy them. The step from zero to one is the key factor in progress of humanity. Peter Thiel sees globalisation as a counterproductive measure, unlike it is taught in society. He states that progress and the future of humanity lie exclusively in the field of new technologies.
His favorite example is the country of China. Its progress is nothing but a mirage, because all it does is copy. There is no progress in copying. So the best China can hope for decades later is to become what America already is today.
The step from zero to one is a true progress and true progress aims at a pivotal technological transformation. That’s how cars replaced carriages, mobile devices replaced slow, bulky computing machines.
The problem is that the step from zero to one is much harder to make than all the next steps. It is hard to create something from scratch, while a lot of people are so fixated on reproduction of ideas. It can be really difficult to avoid this trap. So think twice before executing, even if you think your idea is about to change the world. Peter Thiel considers this first step a defining bedstone for the future of humanity.
Why not use what’s already there?
What is going to happen if you channel all available resources to produce what is already invented? If you provide everyone with amenities and goods available for American middle-class citizens we are bound to face an ecological catastrophe. In reality, our resources are very limited so we need new technologies to prevent us from global collapse and solve the problem.
Peter Thiel sees new technology in its broad sense as a miracle that helps to use less to produce more.
New tech is good but where to find it?
New tech doesn’t appear out of nowhere. Future won’t become what we want just by itself. Peter Thiel notices that we are simply unable to see behind the curtains of modern innovations and realize that our world is still old-fashioned, outdated and the future is not here yet.
The author pays attention to the fact that our goal is to embrace new technologies, develop them and make XXI century a peaceful and evolutionary era, unlike the century before.
Startups play major roles in tech development. Startups are free of megacorps vices, where illusion of productivity dominates the productivity itself. Peter Thiel strongly advises to leave such corporations immediately.
The author describes a startup as a group with a maximally possible number of individuals equally obsessed with the idea of a better future. Startup creators are not just at task of business and making money, they need to put their ideas to test and reinvent business.
Don’t be a business copycat
According to Peter Thiel it is a road straight to failure. The main reason behind companies crash at the start lies in inability to transition from zero to one, to make that important step.
Losers stick to old patterns and can’t create new ones, while healthy entrepreneurship spirit tends to invent and create new features. It can be new, unique product or an outstanding design. Healthy businesses have one thing in common: their unique advantage gives them complete dominance on the market even it is not obvious.
But monopoly threatens capitalism and efficiency, right?
According to Peter Thiel this is a false statement, because economists talk about different market models — absolute competition and absolute monopoly. They are giving ample praise to the first one while strongly disapproving and condemning the second one. Peter Thiel states that monopoly is an essential feature of any successful business. It is the only way to keep your company healthy and maintain the abundance of free resources to develop your enterprise and reward your employees.
Is competition a bad thing?
Following a model of competition companies become indistinguishable from one another. They become enslaved by market and its rules. They are forced do whatever market dictates and spend all their resources to struggle against each other.
The environment of high competition eventually decreases income for a company as an increase in offer gradually reduces its price.
Peter Thiel is convinced that no company can have financial growth under such conditions.
So you need to aim for monopoly?
It is vital to clarify that Thiel speaks of monopoly not as a company that is corrupt and burdened with exclusive government privileges. His idea revolves around productive and creative monopolies. Those companies with unique and innovative advantages, allowing them to surpass their competition. Companies like Google, that managed to discover their own ocean free of adversity and rule it. No company is capable of overwhelming Google on their field in the near future.
Monopoly doesn’t compete. Monopoly is unique. That’s why monopoly sets its own rules and prices. Monopoly is not burdened by competition therefore it can invent, grow, evolve and provide its employees with better working environment and higher salaries.
Why economists hate monopoly and love competition?
Peter Thiel sees competition as an inert, delusional concept of mass ideology that distorts our perception. In reality, only those who are unique can be successful.
In the long run the environment of absolute competition inevitably leads to financial profit decline, while capitalism needs guarantees and steady income.
Monopoly needs to protect itself by keeping its status in shadows.
On the other hand, those without such status tend to publicly claim it and try to minimize level of competition within their field of activity.
A lot of the times competitive environment makes companies see opportunities where there are none. Peter Thiel recalls online pet stores market in the late nineties as an example. Every single company of those who entered it went bankrupt. Remember, if the war is pointless in first place, there will be no victors in the end.
Successful business equals monopoly. How to establish one?
There’s no secret or recipe, but Peter Thiel outlines several critical factors: original technology, network effect, scale effect and brand.
Original technology guarantees that your product is difficult to replicate. Peter Thiel talks about a radical advantage here. Your tech has to be ten times better than your nearest competition. Perfect product design developed by Apple is a solid example.
Network effect is powerful but only achievable if your product is successful. You will always start with small market like Facebook, but if you’re good your market will grow. And remember that small market and non-existent market are two different things. Sometimes it may only seem that you have no market, when in reality it is just too small yet. Be smart and patient.
Peter Thiel reminds that the scale effect is a very important factor so you have to think through it and plan on how you can use it and expand it way before launch.
Brand is a powerful asset in your pocket but Thiel underlines that a product itself is your primary concern.
Establish a monopoly on a small market and then expand. Take a time to plan before the launch of your startup.
Sustainability is important. It may take a couple of years before you company reaches its true value. A lot of startups struggle during the first few years, especially in the field of high tech. The market may come to appreciation even a decade later.
Get rid of short-term thinking. Predict possible risks, don’t expect your startup to pay off right away. Look into the future and be prepared. Plan ahead and don’t give up.
Where to look for breakthrough tech?
Peter Thiel is rather skeptical about creating something with a “bomb effect”, something revolutionary. Instead of trying to impress someone or competing with others focus on finding your path. Never seek recognition. Prioritize creativity and competition will never be an issue.
Don’t be afraid to break the mold. Switch angles, look at things from a different perspective. That’s the key. No need to come up with unrealistic inventions, and insane ideas, just seek opportunities and look where nobody’s looking.
Entrepreneurship demands critical thinking combined with a healthy dash of doubt. Be independent and don’t hesitate to question dogmas. Peter Thiel always asks his candidates during an interview: “Name an important truth you know that the majority of people don’t agree with”. Not an easy question. You can answer it starting to look for a crazy statement everybody agreed on.
Understanding of our past in a lot of ways guarantees a clear understanding of today’s reality.
Be modest in your predictions, be flexible and learn to adapt. Don’t concentrate on sales but on your product and evolve on the go. Otherwise the fate of those from dot-com bubble period awaits you. Companies were estimated to cost millions of dollars before the launch, but in the end… Think, evolve and, once again, doubt. So, risk, don’t be modest, have a plan even if it’s not so good, don’t venture into high-competition markets and care about the sales just as much as you do about your product. Got the idea?
What kind of person it takes for a startup that can change the future?
Peter Thiel pays attention to the fact that most great leaders were eccentric and weird and they were not only praised but a lot of the times despised and outcast. Be prepared for those two different sides of the leadership medal and remember: a leader is not the one who believes he’s a genius but the one who inspires people to be better, more efficient, productive and creative. Also Thiel noticed a direct correlation between the success of a startup and its CEO’s low salary.
Success is never random and according to Peter Thiel the future is defined by your perspective on it. Mindset matters. The author identifies four approaches to the future. Four types of mindset: definite pessimism, indefinite pessimism, indefinite optimism and definite optimism. Four different ways people look into the future. Definite pessimism: it is going to get worse and you need to prepare for that. Indefinite pessimism: it is going to get worse and there is no way to prepare for that. The author is convinced that modern western civilization tends to lean heavy on the side of indefinite optimism. A sort of infantile life stance, where one hopes for the better future but does absolutely nothing to make it happen. A copycat syndrome is a reflection of such life stance. There’s also a strong connection between this and a paradox of opportunities. There are so many opportunities for us today and we are so afraid to lose even a single one that some of us often don’t even use one.
Modern society needs to be more definite. Because your startup won’t succeed if you don’t have a business plan, if you don’t define your goals and if don’t have a clear vision of your project. Take care of the future beforehand. Peter Thiel criticises “lean startup” method for its uncertainty and lack of clarity when it comes to end goals. The method suggests you create a minimally viable product and improve it over time through consumer feedback. Thiel insists this will lead you to become ordinary and won’t move you from zero to one.
Unconventional thinking is only possible when one believes that universe holds a lot of secrets. Today too many of us live like everything is known and long discovered. Why? Some people are afraid to make a mistake, some are simply self-gratified, some have a habit of only taking small steps and some individuals are really convinced that humanity already knows it all and saw it all. “Everything that can be invented has been invented” said Charles Duell, the commissioner of the United States Patent and Trademark Office, in 1899. This universal disbelief also finds its reflection in ideas and convictions that market is effective (history stores a lot of examples when it wasn’t) or that there is no injustice needed to be fixed. Back in the day a lot of people on US soil considered slavery to be absolutely normal, which didn’t mean it was. Remember that secrets, discoveries and revelations surround us, they are near and we just need to see them.
Keys to creating a great company
The most important thing you could do is lay a strong and reliable foundation for your company in the beginning for there is no fixing it later.
A team of like-minded people and structure are important for every company. Companies often collapse due to internal conflicts. According to Peter Thiel the optimal number of people to include in executive board is three. Otherwise there is a high chance for regular conflicts and collisions.
A smart way to motivate your team in the beginning, when you don’t have enough financial resources, is to offer them shares and make them a part of your business. You need people who understand your mission, your goals and share a vision with you. You need those who are ready to be a part of your team.
How to build a solid team?
Avoid internal competition. Make sure that each employee’s functions are different from their colleagues. Healthy and prosperous startup rests on non-competitive environment and team support. Completion is more important than competition.
Peter Thiel as a successful investor
About the power law and why excessive diversification is bad.
The power law reflects an unbalanced distribution, which has its way in every aspect of life. Only a small bunch of investments will give maximum profit. So you need to look for those gems on the market rather than diversify your portfolio with a handful of small investments.
The author suggests that in education you should seek to channel your resources to study one particular field and perfect in it, rather than gain shallow knowledge on everything possible. Analyze your future, set priorities.
What else is important?
“Good product sells itself”. That’s one delusional statement. Never underestimate sales — they move your business. Keep the engine running. Smart sales can even lead you to monopoly over time. Distribution channels can vary depending on your type of business. When the average profit over a whole period of partnership is higher than the average price of calling new partner in it is an indication of success.
Stick to long-term thinking and keep your eyes on the future. Before starting a new business take some time to think what risks and difficulties can it face a decade later and how to deal with it. Maybe you might want to change your business plan.
Peter Thiel also suggests his take on social entrepreneurship, when the goal is not just to “make money” but also to “do good”. In his opinion, those who stick to this model achieve nothing for there is no definition of how these opposite goals correlate. One of the reasons is that there is no objectivity in how you perceive what’s good and useful for society. Is it really useful or just considered as such? What’s really good and useful is creativity and invention. Take a step from zero to one.
Is this book worth reading?
The book is a mandatory read for those who are involved in innovations and startups. It is also a food for thought for those interested in history, philosophy and the future of humanity. It covers a large number of subjects from staff management to artificial intelligence.
Don’t hesitate to also read the very lectures that Peter Thiel gave at Stanford.
Peter Thiel is quite a controversial figure in the world of business, nevertheless he is a very successful entrepreneur and his opinion deserves credit and attention.
Think independently, never rely on majority opinion and conventional wisdom, avoid well-trodden paths, never wait for the future to come, but shape it and move forward. Exercise discipline and evolve.
A lot of the times you can hear someone giving advice to live your day as if it was your last. In his speech for Hamilton College graduates, Peter Thiel suggested exactly the opposite: live your day as if life will never end. Think long-term, maintain quality relations with people around you and remember that every decision you make shapes your future.