Zero To One: A summary

This is an amazing book that I really enjoyed. Thiel gives a clear and concise view of what startups are and how to successfully build them in order to change our future. While I do not necessarily agree with his personal or political opinions, there is no denying that he is an excellent CEO and we should listen to his advice on companies. This is a detailed condensed review of his most important ideas, following the natural order of the book.

Starting up

The best paths today are untried. The act of creation is singular. Going from 1 to n is easy but going from 0 to 1 is the real change that will change the world.

By creating technology, we are changing our course and our future. According to Peter Thiel, there are no formulas for entrepreneurship and success, there cannot be because every innovation is idiosyncratic in its nature. The only truth is that successful people find value in unexpected places.

The challenge of the future

The future is relative. If something that happens that will change our world happens in 50 years, then the future is 50 years. If something radically different happens tomorrow, then the future is tomorrow.

Progress:

Going from typewriter to typewriter 2 is horizontal progress. Going from typewriter to word.exe is vertical progress.

According to Thiel, on a macro scale, horizontal progress is globalization, while vertical progress is innovation and technology. To be sustainable, we need to strive for innovation and not for globalization; because it only allows us to scale our innovation. We often think that our worlds are defined by globalization when in truth, it’s the innovation and the technology that matters more.

Especially in today’s world (ecological concerns), globalization without new technology is unsustainable.

We used to live in zero-sum societies where success meant taking somebody else down. We now live in a positive-sum society thanks to progress and innovations.

Startup Thinking:

What is a startup for Thiel? It’s a small group of people on a mission to change the world. Its most important strength lies in new thinking. A startup questions ideas and rethink business from scratch.

Four big lessons to learn

Because of the Dot-Com bubble and huge crash, Peter Thiel states that today, every startup in Silicon Valey follows a common dogma that can be resumed in 4 big concepts :

1. Make Incremental changes. We should be humble and not aim at revolutionizing everything. Taking small steps is the only safe way to go further.
2. Stay lean and flexible: You should not plan in advance and instead focus on what the customer wants
3. Don’t try to create a market prematurely, instead, try to improve on already existing products
4. Don’t bother about sales, instead, focus on products.

According to Thiel, this is a gross error and has led to a uniformity of businesses and thinking in Silicon Valley. For him, the real lessons we should follow are opposite :

1. It is better to be bold than trivial
2. A bad plan is better than no plan
3. Competitive markets destroy profits
4. Sales matter just as much as the product

The most contrarian of things is not to oppose the mass but to think for yourself. ( This is a common Peter Thiel argument, see The Diversity Myth )

What valuable company is no one building?

An important lesson: If you want to create and capture lasting value, don’t build an undifferentiated commodities business.

One of the most important keys for a startup is the market definition. Every successful company is monopolistic according to Thiel. But one should not fall into the pitfall of defining his market as too small and thus getting the illusion of monopoly. In fact, when starting, entrepreneurs should always try to overstate their market.

For Thiel, monopolies aren’t inherently bad. They would be if we lived in a static world where the rules would be the same over and over again. If it were such a case, monopolistic companies would retain their statuses indefinitely. Our world is in fact dynamic. Nowadays the rules of the game change all the time and it’s our role to adapt to them. Why bother making another common company? You need to create your own market and rule over it. Monopoly is the condition of every successful business.

On the ideology of competition

The more we compete, the less we gain.

Competition exists in every aspect of our society. From sports to academics, we teach children that it is healthy and we encourage it. As a result, competition is naturally found in Businesses. According to Thiel, competition is in fact more often than not detrimental to businesses.

Last mover advantage

The way for a company to be valuable is measured on her capability to make money in the future. (Twitter has made money in 2017 for the first time)

That is why it's a fatal mistake to be focused on making money in the short term. A company must grow and endure. You can make a lot of sales and measure incredible growth but the most important thing is to make sure the customer who buys your product now will come back and buy them again ( this is why we have seen an incredible prevalence of the subscription business model)

The most important question you should ask yourself is:

Will this business still be around in 10 years?

Analyze your business under these 4 criteria :

1. Proprietary Technology. This is the most useful thing to have for a business. Indeed, nearly every major company has proprietary technology. A good rule for PT is to be at least 10 times better than the concurrence. (A good way to be 10 times better is to invent something new)
2. Network Effects. If you can make sure that your product is valuable to your earliest customers, and that you don’t need to wait that your product is used by thousands, then it will have a chance to grow. In other words, start small.
3. Economies of Scale. A good startup should always be scalable easily. And that is why tech is considered by many the best and easiest places to innovate. Indeed, the cost of giving another customer a copy or license of software is almost zero. Beware as services companies can almost never have a monopoly.
4. Branding. This one is almost self-explanatory. A good, recognizable image and marketing go a very long way.

How to actually build a monopoly?

1. Choosing a small market: Every startup should start with a small market. It should aim at dominating this small market first. It should aim at a small group of particular people that have a singular need and that are concentrated and not well deserved by the competitors
2. Scaling up: The startup needs to choose a proper sequence of market strategy. Successful businesses all have the core progression of dominating a niche then scaling to adjacent markets as part of their founding narratives.
3. As a follow-up to his no-competition theory, Thiel then states that you should avoid making any kind of disruptions because you should be avoiding any kind of competition in the first place. ( A good counter-example would be Uber. How does Uber grow as a company without competing directly against taxis? )

You must study the endgame before anything else.

The case for a definite future

Does success come from luck or skill?

What we know for certain: Success is never accidental.

Is it a matter of chance or design?

Here Thiel raises one of his most important arguments. According to him, we must take the future as something definite, in order to plan for it, prepare for it, and to act accordingly.

This is also where he draws criticism in modern education systems: We have lost our sense of purpose because our vision of what comes next is blurry. Instead of doing many things poorly, Thiel emphasizes deciding on one best thing to do and going hard at it. Instead of working tirelessly to make himself indistinguishable, one must make himself a monopoly of one. In many ways, according to the author, our whole society has become indefinite. As a result, we have lost our boldness, our horizon and our future seem uncertain.

In business more than ever, Thiel makes the case for Entrepreneurs having a clear, long-term vision and tries to encourage boldness, forward-thinking, and avant-gardism. For him, we must embrace design again and try to fight the inequity of luck and chance.

The Power Law

Here Thiel explains shortly that everything that matters in Silicon Valley follows the similar pattern of a Power Law :

A Power Law is exponential growth and follows the Pareto Principle:

$f(x)=ax^k$

When investing in a startup, one should always follow this simple rule: The startup should have to ability to refund all the costs of previous investments. Thiel argues that the Spray and Pray strategy commonly found in VC is inherently bad. Indeed, focusing on one or two very promising companies will yield a much larger return in the long run, simply because they follow a Power Law. He takes the example of his fund where the initial funding of Facebook has yielded more return than any other combined.

The author goes on further defining the use of Power Laws in startups: The most important things all follow the same common pattern (The Power Law can be assimilated as the Pareto Principle): One market will dominate the others, one product will dominate the others, one distribution strategy dominates the others, and most of all, decision making and time also follow that law: One decision can influence the company for years to come.

Secrets

In this important chapter, the author develops the concept of secrets: which can be summarized as this tweet by Naval Ravikant :

You must give society what it wants, while not knowing it wants it, at scale.

Essentially, Thiel argues that there are many secrets still waiting to be found in the wild by daring entrepreneurs. For example: That people would be willing to pay for electric cars, that there was a huge need for affordable housing all over the world, etc… If we look back at the earlier question “What company is nobody building ?” it’s easy to see that the answer is a secret waiting to be discovered.

Why aren’t people looking for secrets?

1. Our society is shaped so that we go step by step, little progress at a time, rewarded when doing exactly what is expected of us.
2. The second factor is that we are fundamentally risk-averse creatures. The more we take risks, the lonelier we are, and that prospect can be challenging for most of us.
3. Complacency. The more money and the higher up society you go, the easiest it should be to discover secrets and seek new knowledge. In reality, it is here we find the most complacency because once you’re at the top, comfort and complacency become the main behaviors.
4. Flatness: Because of globalization, it’s easy to think that everything has been done, and every idea made into a company. The perception of the world becomes more and more homogeneous and we like to think there are no more secrets to be found.

As a result, Thiel argues that we have lost our child-like secret hunting skills, and the will to find them with it.

According to him, secrets can still be found by those relentlessly looking for them. Only by believing in them and looking for them will we be rewarded. And the best place for looking for them is where no one else is looking.

The roads don’t have to be infinite after all. Take the hidden paths.

Foundations and Building a Team

One of the most important aspects, if not the most important in creating a startup, is the foundations upon which it is built. A startup with a wobbling foundation cannot be fixed and is destined to fall. As a founder, it is your job to get things right from the very beginning.

That means, of course, finding the right co-founder first. It’s the single most crucial thing to get right: you should be complementary in your skills and your personalities, while also having good chemistry and knowing how to work together. While the task may seem daunting, it is the first thing you should look for.

Only at the foundation act can you set up the rules that will make your success.

Then, as you build your team, the same kind of rigor is needed: Pick individuals that are aligned with your way of thinking, and are 100% committed to the startup. They should love their work, and you should adopt a common work ethic and culture in the company. The relationships should be tightly knitted. Everyone should be excited to work

Why should talented individuals forfeit their huge pay in GAFA’s and the like to work with you? The answer is that they should be excited about your mission and your team.

Every member of the team should have only one job, for clear responsibilities, and easily resolved conflicts. And when conflicts are resolved and peace installed, startups survive.

Sales matter

We often think of selling as some low-level easy activity, while we focus on building and the science of the product in itself. It's easy to mock selling and disregard it as being important. According to Thiel, sales are the single most underrated aspect of companies. It's because when sales work, they are invisible. There is a common trend in every company of hiding sales techniques because the less visible they are, the more vulnerable to them we are.

Think about it: When you buy a product, you think that this decision is purely made by you. In reality, a plethora of external factors and marketing strategies have already influenced you, whether you like it or not, in making this purchase decision.

Here are defined two important concepts: The Customer Lifetime Value (CLV) and The Customer Acquisition Cost (CAC)

The CLV is the value that the customer will give you over his lifetime: The higher it is, the better. It’s the reason why we have seen an increase in subscription-based businesses over the past few years.

The CAC is the money you spend acquiring your customer. The lower, the better.

In a nutshell, sales should be as important if not more important as building a good product. (How many companies establish monopolies while being marginally worse but having way better sales tactics? The answer is a lot.)

Complementarity

The most valuable companies in the future will be the one that seek to empower people instead of making them obsolete.

Here Thiel gives another key to building the future: We must harness AI capabilities and weave them into our companies so that humans can make the most of their lives. This is a fundamentally optimistic point of view and while it can be argued, there is no denying that AI is already transforming our societies, whether we like it or not. We just have to ride the wave the best way possible. For him, the real question is: How can computers help humans solve complicated problems?

Seven questions every business should answer

These seven questions synthesize the advice given in the book so far.

1. The Technology: Does your technology go from zero to one ? or does it go from 1 to n? In other words, are you creating breakthrough technology or are you incrementing?
2. The timing: Why start now? Is it the right time?
3. The Monopoly: Have you properly defined your market? Are you starting with a big share of a small market or a small share of a big market?
4. People: Who is on your team, and why?
5. Distributing: How do you make sure your product gets distributed? Creating is not enough.
6. The Future: Is your company still proposing value in 10 years?
7. The Secret: Have you identified something that others haven’t?

Answering these questions properly should be the start of any company. Startups and companies that answer the seven questions will undoubtedly find success.

On founders

One common element in successful entrepreneurs is their seemingly eccentric nature. Is it survivor bias, or is there truly a correlation between the two? We can say for sure that being successful means doing what nobody is doing, looking elsewhere, and stand out from the rest. Those three requisites already need to have a singular personality, and thus it would not be a stretch to say that being eccentric help. More importantly, can we say that everyone is unique and that some resist society's way of shaping every individual to think the same better than others?

In any case, the need for founders is quite evident. Thiel cites here the ever-famous Jobs example, where, on the brink of bankruptcy, when he single-handedly managed to make into the most valuable company in the world.

Conclusion

Thiel concludes his book by reiterating his idea that a better future, no matter what, is not guaranteed. We must work for it, and we must think for ourselves, getting rid of society’s pre-made ideas, looking for freshness and renewal, just like millions of humans have done before us.