Zero to One: Notes
on Startups, or How to Build the Future
About Author:
Peter Andreas Thiel (born October 11, 1967) is a
German-American billionaire entrepreneur and venture capitalist. He is a
co-founder of PayPal, Palantir Technologies and Founders Fund. He was ranked
No. 4 on the Forbes Midas List of 2014, with a net worth of $2.2 billion, and
No. 328 on the Forbes 400 in 2018, with a net worth of $2.5 billion. Thiel was
born in Frankfurt. He moved with his family to the United States as an infant.
He spent a portion of his upbringing in Southern Africa before the family
settled in California in 1977. He studied philosophy at Stanford University,
graduating with a B.A. in 1989.
Summary of Book:
Zero To One by PayPal co-founder, entrepreneur, and venture
capitalist Peter Thiel. The main idea behind Zero To One is that it's
imperative to focus on businesses that create something new, going from zero to
one, as opposed to copying things that already work, going from 1 to n. The
author prescribes how to build a company that generates profits well into the
future. To succeed, you need to build and maintain a monopoly. We'll start with
a concept, why are monopolies critical. Then we'll look at ourselves, how to position
ourselves to start a zero to one type of company. And then we'll shift to the
company, how can we actually build a monopoly? Finally, how do we protect such
a monopoly?
First why a monopoly? The author makes the controversial statement that capitalism and competitions are opposites. That's because capitalism is all about generating profits, whereas competition eliminates profits. Competition is all about lower prices and margins. In contrast, monopolies enjoy high profits and afford a company the luxury of investing in the future because the profits will compensate for such investments. Therefore, entrepreneurs should be intent on creating monopolies. So the question is how to create and maintain such monopolies? It all starts with looking at ourselves. The author has the contrarian belief that success is not a matter of luck. If you think your future is ruled by luck, you have to be ready for anything. Our entire system is built on this premise, and emphasizes diversification in education and skills. In high school, you spend the exact same time on each discipline, same thing in college. We are rewarded for knowing just enough of everything. The result? You'll be average at everything, and really good at nothing. Instead, taking the approach that you can actually shape your own future, you will think very hard about your next steps, and take the time to plan ahead. You are not a lottery ticket. Getting laser-focused early on can help you develop standout skills, and come up with those zero to one solutions we so desperately need. So how do you go about building a monopoly?
First, develop a
zero to one type offering for a niche market and then scale up. You need to
come up with a product or service solution that delivers a 10x speed,
performance, or convenience benefit over the status quo, in order to get noticed
and shift consumer behaviour. And don't worry about global domination at these
early stages. In fact, talking about addressable markets in the billions is a
red flag because these markets often lack a good, well-defined starting point, and
they face a lot of competition. Remember, the key to success in value creation is
to avoid competition at all costs. After all this work, you're still not
finished because a monopoly isn't worth much unless it can be protected. You
can maintain your monopoly through network effects, economies of scale and
branding. Network effects address the value of your offering. The more users
you have, the greater the value to each user, making it more difficult for
someone to compete with you later. Economies of scale address your production
costs. The larger your volume, the lower your average cost because of high
fixed costs, making it difficult for a competitor to generate any profits and
branding addresses awareness, which lowers your distribution costs. A competitor
will need that much more upfront investment in advertising to generate
awareness and penetrate your market. The author has three core beliefs that
form the backbone of his prescription for success, globalization is doomed without
technological innovation, capitalism is the opposite of competition, and we can
shape our own future. Therefore, we need to focus on specific skills that will
prepare us to create innovative start-ups with monopoly power, and we need to
figure out ways to protect these monopolies. The bad news is we need to make
bets on the future which to a certain extent is unknowable. The good news is
that, as the author says, even a bad plan is better than no plan. Perhaps not the
most optimistic conclusion, but it's encouraging us to plan ahead, so that at
least some of us may come up with these much needed zero to one startups.
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