Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel with Blake Masters (Crown Business, 2014), reviewed by Steve Gladis, January 2015.
1. Bottom Line of Zero to One. If you copy another business, you’ll never create the next Apple or Microsoft. Creating something unique and new is Zero to One. Unless we invent such companies in America, we will fail the future.
2. The Future. “What important truth do very few people agree with you on?” This is the question Thiel asks entrepreneurs. He’s looking for disrupters—contrarians (not miscreants) who don’t follow the crowd. His best answer(s): “Most people believe in X, but the truth is the opposite of X.” Progress can be incremental and horizontal—copying what others do—or transformative and vertical—doing very new things that create the future. And technology can lead us to transformational change.
3. Contra-Lessons Learned from the 1990s. Silicon Valley learned some dysfunctional lessons from the Dot-Com Bust: 1. Make incremental advances [Thiel recommends the opposite~It’s better to risk boldness than play it safe with triviality]. 2. Stay lean and flexible [Thiel~A weak plan is better than no plan]. 3. Improve on the competition [Thiel~Competitive markets destroy profits]. 4. Focus on products, not sales [Thiel~Sales matters just as much as product].
4. Value and Companies. Key entrepreneurial question: What valuable company is nobody building? Need to create AND capture value. In a highly competitive market, no company does well because value gets commoditized. But a unique monopoly (like Google) can set its own price. Google went from Zero to One in 2000. Entrepreneur Lesson: “If you want to create and capture lasting value, don’t build an undifferentiated, commoditizable business.” Monopoly makes successful businesses. If you get wrapped up in competition, you lose. Competition is an outdated ideology—starting with school where competition “beats their dreams out of them.” Competition pushes us down a conformist track. Monopolies have several things in common: 1. Proprietary technology (hard to replicate); 2. Network effects (the more the merrier); 3. Economy of scale (leverage reduces costs); and, 4. A strong brand (people pay a premium for brand).
5. Money. There’s an interesting discussion of venture capital, citing that it takes about 10 years for a company to grow up and be sold. However, most venture backed companies fail—so VCs are like lotto ticket buyers. Venture capital is what Thiel calls a “spray and pray” approach. But they bet on the few that will blow it out and make it worth all their failed investments. The winners are Zero-to-One firms!
6. The Monopoly Secret. Competition and capitalism are opposites. “A great company is a conspiracy to change the world.” The author warns being careful about who you tell your secret to…because mankind has always been unkind to people who expose their forward thinking to the world. Also, remember Thiel’s Law: “A startup mess up at its foundation cannot be fixed.” Bad partners in the beginning can haunt you forever. Carefully study “founding teams” before making investments into their company. For example, such teams should share a “prehistory” before starting a company; otherwise, it’s like investing in a blind date. However, you can’t go from Zero to One without a team. He distinguishes between ownership (who owns the company), possession (who runs it), and control (who governs it).
7. Thiel Tips. Keep corporate boards small—no more than 5 unless you’re publically traded; avoid part timers—either people are on or off the bus; CEOs of early stage startups should never make more than $150K to encourage innovation; equity can align people, but should align it to risk—the more risk and future orientation, the more equity. However, even then be judicial about giving equity away—you want people fiercely loyal to your mission; define roles and keep it simple—maybe focus on only one critical role per person; incorporate distribution into design of a product or it will fail; complex, large scale sales don’t require salespeople but rather the CEO or senior exec; a product is viral when users invite their friends; paying people moderately ($20) to sign up and invite friends works; poor sales rather than bad product is the reason businesses fail; need to sell company to the press through media; computers won’t replace but will complement people—the future will be about how computers can help humans solve problems.
Seven Critical Questions Every Business Must Answer. 1. Can you create breakthrough tech instead of incremental improvements? (Engineering); 2. Is now the right time to start your particular business? (Timing); 3. Are you starting with a big share of a small market? (Monopoly); 4. Do you have the right team? (People); 5. Do you have a way to not only create but also deliver your product? (Distribution); 6. Will your market position be defensible 10 and 20 years into the future? (Durability); 7. Have you identified a unique opportunity that others don’t see? (Secret).