Summary of Zero to One by Peter Thiel

Takeaway

• Startups are built on secrets. A great startup idea is built on something most people don’t know.
• The greatest companies are so good they don’t have any competition.
• The last mover in a market will be the one that can come with a product 10 times better than the competition and dominate that market.
• Employees should have a genuine desire to solve the problem the startup is solving.

Table of Contents

What Zero to One Talks About

Zero to One is a book written by the entrepreneur, venture capitalist, and philosopher Peter Thiel. It presents counter-intuitive business principles to startup building. The book taught me startups are based on secrets and that the only way to build them is to get a great team aligned around the same purpose.

I thought Zero to One was the greatest business book of all time the first time I read it. I thought it was one of the greatest books of all time the second time I read it.

Thiel uses historical and philosophical analogies to teach business lessons. What you get in exchange is a mental orgasm. No dimensions of entrepreneurship are sparred.

Thiel discusses the impact that businesses have on society, how to find a business idea, how to assemble a team, how to manage people, how to manage the company, how to think about your company, and much more.

This book is a big 10/10.

Seven years after it came out, it is more relevant than ever.

If you have never read the book, don’t read the summary.

Read the book first.

If you have already read the book, then the summary will do.

Buy the book here.

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Summary of Zero to One Written by Peter Thiel

Chapter 1: The Challenge of the Future

Every moment in business happens once because every problem is solved once. The next Bill Gates and Zuckerberg won’t make OS or social media companies. The next great founder will solve an unsolved problem.

-> if you are copying them (making OS and social networks) you are not learning from them.

Creating a company that does something we already know how to do is easy.

It takes the world from 1 to n.

Doing something new (that has never been done before) is hard.

It takes the world from zero to one -> these companies achieve explosive growth.

The best paths are new and untried.

As such, the paradox of teaching entrepreneurship is that such a formula does not exist.

Successful people find value in unexpected places and do so by focusing on first principles instead of focusing on formulas.

There are two types of progress: vertical, and horizontal. Horizontal progress is creating what has already been created, like globalization.

Globalization is simply repeating somewhere what has worked before.

Vertical progress is doing something nobody has ever done before -> going from zero to one. It is technology.

Globalization and tech are different, so they can happen at the same time.

1914-1971 saw rapid technological innovation and globalization.

Since 1971, we’ve had a lot of globalization mainly.

Most people think we have reached the peak of technology and that the future is only going to bring more of the same.

It’s not true.

If we keep on living the way we live, we won’t have any future left anymore because we live in an unsustainable way.

-> we need to create more technology as tech is the only tool we have to make more with less.

The vision of the future was optimistic and definite (flying cars, spaceships).

That didn’t happen.

The world of today is old because we have stopped inventing.

-> building the future is not automatic.

It is engineered.

If we don’t do it, nothing gets done.

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Chapter 2: Party Like It’s 1999

New technology tends to come from ventures – a group of people animated by the same mission.

That’s because it is hard to develop something in big organizations, and even harder to do it alone.

Startup means working with others to get stuff done, but not with too many people so that…you can actually get stuff done.

Since a startup attempts to create that which has never been done before, it needs new thinking, which is a company’s most important strength. Hence the contrarian question:

If you can identify a delusional popular belief, you can identify the contrarian truth that lies behind it.

The Impact of the 2000 Tech Bubble

When the tech bubble exploded in 2000, technological optimism faded. The future became indefinite.

Technology had failed, globalization replaced it as the hope of the future.

Investors learned that going from the real world to the digital world had not worked, so they went back to the real world (real estate).

The result was another bubble, which exploded in 2008.

Those that stayed with tech learned four important lessons:

1. Make incremental advances instead of having grand visions. The grand visions projects (Webvan) had fallen completely.
2. Stay lean and flexible. Entrepreneurship is experimentation and finding what works, not executing a vision.
3. Improve products of the competition. The only way to know if you have a market is to test it with an already-existing customer.
4. Focus on product, not sales. If you need sales, your product isn’t good enough.

Unfortunately, the opposite of these lessons is probably more correct:

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

To build new technologies, we need to abandon the dogmas learned after the dot-com bubble crashed.

That doesn’t mean opposing them dogmatically.

It means looking at what type of thinking is influenced by the mistakes of the past, and what isn’t.

It means looking at the best way to think through something to arrive at the desired result.

It means going against the mainstream and looking for the truth that nobody sees.

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Chapter 3: All Happy Companies Are Different

The business version of the question we asked above is “what valuable company is nobody building?”

This question is tough because while your company should create value, it should also capture some of this value to be valuable itself.

Eg: Airlines create a lot of value, but capture very little of it. Google creates less value but captures more of it -> Google is more profitable than airlines.

The airlines compete with each other, but Google stands alone. Google is a monopoly because they are the best (by far) at what they do.

While it is assumed that capitalism develops in a perfect competition market, it is not empirically and economically true since firms wouldn’t make profits in perfect competition.

Furthermore, profits are what drive capitalism.

As such, if you want to capture value, you need to build a business that is singularly different than others, and that can enjoy its own monopoly.

Lies People Tell

Businesses in real life are much closer to being monopolies OR being in perfect competition than we think because they lie about it.

Monopolies have interests to say they are not monopolies (because of the antitrust laws) while firms in perfect competition have interests to say they are monopolies because their investors want ROI.

As such, money for a company is whether an important goal, or the only thing that matters.

Because monopolies don’t compete, they can afford to think about things that aren’t directly related to money. Money is important, but it is not all. These companies can explore, fail, innovate, and keep on growing.

For a restaurant though, the competition is so high that they can’t afford to do that. They have neither the time, energy, or opportunity because margins are too important for them (because they are small).

Monopoly Capitalism

Technically speaking, monopolies deserve their bad reputation – but only in a world that does not change. Since our world changes, monopolies are not static.

They are creative, because if they don’t evolve, they know they won’t survive.

As a result, creative monopolies give customers more choices by inventing new products and services. Governments know that, and this is why they distribute patents.

The dynamism of new monopolies explains why old monopolies can’t control and halt innovation.

Apple’s iOS decreased Microsoft’s Windows market share. We observe that the former didn’t come to secure a position in the market: it came to destroy other monopolies.

As such, monopolies drive progress because the idea of being a monopoly is a powerful incentive to innovate.

All happy companies are different: they solve a unique problem better than everyone else and enjoy monopoly perks. All unhappy businesses are the same: they failed to escape competition, and get stressed out because of it.

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Chapter 4: The Ideology of Competition

Creative monopoly = new products that benefit everyone + profits.

Competition = no profits, no innovation, and a struggle to survive.

Why do people think competition is healthy?

Because it’s an ideology, a truth people believe no matter what, without challenging its core.

In reality, the more we compete, the less we gain.

But since our entire society is based on competition (sports, school, politics, economics, military, dating…), we don’t realize it.

Why do people compete? According to Marx, they compete because they are different. According to Shakespear, they compete because they are the same.

And as they compete, they become more and more the same. In the world, of business, Shakespear is right.

Let’s illustrate this with Google VS Microsoft.

At first, they were completely different. One made a search engine, the other made an OS. Then they started competing and became similar (Bing VS Google, Word VS Docs, Onedrive VS Google Drive, Surface VS Nexus, Windows Phone VS Android, etc) and lost sight of what mattered most: building new things.

Some years later, Apple came and overrode them both. That’s because competition causes us to overemphasize old opportunities and slavishly copy what has worked in the past instead of wondering what new things we should create.

Sometimes, some types of competition deserve to be fought. But most don’t.

If competition with a rival becomes unproductive for everyone, don’t fight them.

Merge with them.

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Chapter 5: Last Mover Advantage

It’s good to escape competition, but you must be able to keep this advantage in the long term. Your company needs to be built for sustainability.

Most of the time, however, investors and entrepreneurs focus on direct growth because it is easy to measure and forget about durability because it is hard to measure, which makes no sense.

Most tech companies will only make money in 10-15 years, hence the need to focus on sustainability if they hope to achieve profitability.

If you focus on short-term growth only, you miss the most important question you should ask: will this company still be around a decade from now?

Characteristics of a Monopoly

1. Proprietary technology

Your technology must be at the very least ten times better to enjoy a real monopolistic advantage. The clearest way to make a 10X improvement is to invent something new. If you build something where there was nothing before, the increase in value is theoretically infinite.

You can make a 10X improvement by improving a product or a service like Amazon did with bookstores. Or you can make it through superior design.

2. Network effect

They make a product more useful as more people use it. However, you will never reap them if the service you are proposing isn’t valuable to the first user.

Network effects businesses must start in very small markets, markets that seem too small to be profitable, and scale from thereon.

3. Economies of scale

A good startup should have the potential for great scale built into its first design. Services businesses, for example, are difficult to scale.

4. Branding

Brands must come after substance, not the other way around. A brand that sells nothing will eventually die (Yahoo).

These four characteristics define monopolies, should you choose the right market.

Building a Monopoly

Start small and monopolize

Start small. Before dominating a huge market, you should dominate a very small market and expand from thereon. It’s better to start too small than too big.

It’s better to serve a few thousand who really need what you make than to serve millions who don’t care.

The ideal market for startups is a small group of particular people concentrated together and served by few or no competitors.

Scale-up

Once you dominate your small market, extend to adjacent markets. Slowly, but surely.

Don’t disrupt

Disrupting means you will face competition, and that you see yourself in the eyes of your competitor. Don’t try to disrupt. Try to add value to the overall market instead.

The Last Will Be First

First mover advantage is a business myth. What matters is to make money in the long-term – and first movers only make money at the beginning. It’s much better to be the last mover.

Make the greatest last development to a product or a service and go and enjoy your monopoly.

To do so, “you must study the endgame before everything else.” That means you need to have a vision of the world you want to achieve.