Zero to One: Summary & Review - 1 | Summaries: Must Read Books for Entrepreneurs - Entrepreneurship PDF Download

Book Review

• Going from zero to one means going from nothing to something. This is the greatest leap possible — greater than going from one to 10 or even from one to 100. To go from zero to one is to conjure something into existence from the dark void of oblivion. This is the essence of true innovation.
• In Zero to One, Peter Thiel draws on his experience at PayPal and Palantir to offer ideas and suggestions for technology startups. Unlocking the power of innovation is the primary goal. In order to reach this goal, the entrepreneur will need to question conventional wisdom, embrace monopoly and capture value for their new enterprise.
• A character as well known and controversial as Peter Thiel is at something of a disadvantage as an author. As much as some readers may admire him, others probably do not. The reader shouldn’t allow any such baggage to keep them from reading Zero to One. Taken on its own merits, the book is a well-written, thought-provoking read. The reader should maintain an open mind and evaluate Thiel’s opus critically. Intellectual honesty is challenging, but it can bring the greatest rewards. This book is likely to challenge anyone’s opinions, no matter where they may fall on the political spectrum. Groundbreaking ideas have a way of doing that.
• One example of Thiel’s unique reasoning is his enthusiastic embrace of monopoly. Thiel demonstrates not only his ability to come at an old topic from a new direction, but also a fearless ability to speak heresy. Competition, he explains, is not the social good we were all taught that it was in econ 101. It results in anti-social behavior and squelches innovation. Monopoly, on the other hand, has the potential for positive effects. When a company knows it can earn a termed monopoly via patents and similar methods, the firm is motivated to invent new technology, which benefits society. He is quick to state that monopolies can be misused by the greedy, but he doesn’t linger on this point. No safeguards to protect society are considered or recommended. Theil seems to be too busy making his core argument to be sidetracked by such considerations.
• Again, the flaws in this book shouldn’t stop anyone from reading it, as long as they remain alert to the problems. Consider it an opportunity to exercise critical thought. For the most part, this work offers solid advice for the entrepreneur and an intriguing peek into the mind of a truly unique thinker. It is sure to stimulate new ideas in entrepreneurs and non-entrepreneurs alike.

Summary

Chapter 1: The Challenge of the Future

• The future is a time when things will look differently than they do today. By this definition, the future might not happen for another 100 years if nothing changes. On the other hand, the future might come tomorrow if there is rapid change. We don’t know much about the future, but we do know that it will be different from the present and that it will emerge from today’s world.
• There are two different kinds of progress. Horizontal progress occurs from copying things that work. It’s going from one to n, so that if you have a typewriter and then you build 100 more, you’ve achieved horizontal progress. Vertical progress is achieved by doing something wholly new. It means going from zero to one. This kind of progress is hard to imagine, because it’s something that’s never been done before. If you have a typewriter and then you build a word processor, you’ve achieved vertical progress.
• Globalization — taking things from one place and applying them everywhere else — is horizontal progress. Vertical progress comes from technological breakthroughs, and “technology,” by the way, doesn’t just describe computers. Any new way of doing things can be called technology. Globalization and technology are two different kinds of progress that might or might not happen concurrently. You can have one type without the other, you can have both, or maybe neither of them. Between the two kinds, technology will be the defining force of the future.
• There’s a tendency to imagine that we’re nearing some sort of end state. Even the expression “developed world” implies that some countries have climbed the mountain and that “undeveloped” countries just need to catch up. Our technology isn’t sustainable, however, especially if everyone else adopts it. We have limited resources and our environment can’t endure the pollution that level of “development” would generate. Globalization without advances in technology would devastate the planet.
• At one time, people thought technology would continue to improve in all directions. We wouldn’t have to work so many hours, we’d be riding in flying cars, we’d be taking vacations to the moon. The only area that’s seen real vertical progress, however, is computer technology. Progress isn’t a given; it doesn’t happen automatically. We must first imagine and then create the world in which we want to live.
• New technology comes from startups. Big organizations lumber around uselessly, and individuals don’t have the resources to create an entire industry. Small, agile groups foster innovation.

Chapter 2: Party Like It’s 1999

• It’s easy to fall prey to popular delusional beliefs. Conventional wisdom can be persuasive.
• One way to think clearly and eliminate delusion is to study history. Look at the 1990s: some people have warm, nostalgic sentiment for this era, but both good things and bad things happened in the 1990s. Grunge music proves how bummed out everyone was.
• Then, dotcom mania raged from 1998 to 2000. Investors were throwing money at any startup. People were leaving good paying jobs to strike out on their own and form new companies, certain that they would become rich. A lot of money was lost, but people believed so strongly in the dotcom economy that they didn’t heed the warning signs. The cognitive dissonance of Silicon Valley was terrifying. The tech bubble and irrational exuberance made common sense seem like an eccentric attitude.
• The dotcom crash brought the good times to a halt, and this trauma still affects Silicon Valley. It instilled some deep-seated beliefs in the Valley that persist to this day, including suspicion of grandiose visions. Small advances, incremental changes are safer. Agility became one of the most valuable characteristics a firm could have. Rather than investing in long-term plans, companies needed to be lean and mean, able to respond to changing circumstances. Improving products in existing markets became more important than creating new markets. Look at what competitors are doing and imitate them.
• Many people consider these lessons learned to be of central importance. Actually, there is probably more wisdom to be found in the opposite principles. There’s a lot of value in being bold and making big moves. If it even needs to be said, planning is important. Competitive markets aren’t where the big profits can be found; it’s better to create new markets. And it’s important to keep in mind that sales are as important as product. Advertising is not a waste of resources.
• People are overcompensating, but they need to get back to taking risks. They shouldn’t go crazy with it like they did in the 90s; they have to strike the right balance between caution and taking chances on innovation.

Chapter 3: All Happy Companies Are Different

• It’s possible for a company to create a lot of value without actually becoming valuable itself. A successful company captures some of the value that it creates.
• One important factor that determines how much a company earns is competition. The level of competition varies from company to company and industry to industry. Think of it like a scale. On one end, you have a perfect monopoly where there is absolutely no competition. Some companies become monopolies by using questionable tactics against potential competitors; others become monopolies because they get licenses or lucrative contracts with the state. Then, there are some companies that achieve monopolies because they are innovative and have something unique to offer. When Thiel talks about monopolies, we’re talking about this last group, companies that are so good that they have left their rivals in the dust.
• On the other end of the scale, where there is a lot of competition, price is affected primarily by supply and demand. The product that one company offers is very similar to the product other companies sell. These companies have to price the product at whichever point the market forces determine. It isn’t possible for companies to make much money under these circumstances.
• Competitive businesses have super tight margins, while monopolies can afford to think about things besides the bottom line. (Monopolies are better for profit.) Both monopolies and competitive companies are likely to tell white lies about themselves. Monopoly companies don’t like to invite government scrutiny by admitting that they are a monopoly; competitive companies tend to understate their competitive condition and emphasize ways in which they’re unique.
• In a static world, monopolies are bad because they just sit around and collect money. They can jack up the price of their product, knowing that people will have to pay whatever they charge. In a dynamic world, however, monopolies are creative forces that give people more choices. And the government understands this. That’s why we have the patent system that we do. Patents allow companies to have monopolies for a while. It incentivizes invention — companies know that if they invent something new, they’ll have a monopoly on it for a substantial amount of time, so they’ll be able to make a good profit from it.
• Tolstoy observed that all happy families are alike, but unhappy families are each unique in their unhappiness. This is the opposite for business. Happy companies create unique monopolies for the circumstances they face. Unhappy businesses all have the same problem: competition.

Chapter 4: The Ideology of Competition

• Innovative monopolies generate profits and create new products that benefit society. Competition limits innovation and profits. We have been indoctrinated to believe that it’s a positive force, but competition is an ideology that doesn’t serve us very well. Our culture reinforces this ideology, but that doesn’t make it any truer.
• There are two different ways to look at competition. You can frame it the way Marx did or the way that Shakespeare did. In Marx’s world, people have conflict because their life circumstances have made them different from each other. Workers fight the bourgeoisie because they have conflicting goals and ideas. The way that Shakespeare saw it, however, is that people are mostly alike. They don’t have many reasons to fight, but they do it anyway. The more they fight each other, however, the more they become like one another.
• When it comes to the world of business, Shakespeare’s viewpoint is more accurate. People get competitive with their rivals and lose sight of the important goals. (Look at Google and Microsoft like the warring families inRomeo and Juliet. They battle each other because they are similar.)
• Competition limits vision and encourages obsessive hostility. It can mess with people’s perceptions and priorities. It makes people copy one another, which limits their creative potential. It can cause people to see opportunities where none exist. In the 1990s, there was intense competition among online pet stores: Pets.com, Petopia.com, Petstore.com and who knows how many others fighting for market dominance. They were too busy fighting amongst themselves to determine if online pet stores were even a lucrative enough concept to bother fighting over. Eventually, the online pet store market crashed and burned, taking plenty of investment capital with it.
• Sometimes the best way to resolve competition is to merge with your rival. Thiel and Elon Musk were rivals until they both realized that the dotcom bubble presented a greater threat than either of them. So they merged. It was difficult to turn their rivalry into a partnership, but they overcame that challenge.
• Sometimes you have to fight, and in those situations, you should fight hard and fight to win. But pick the right battles — it’s not fighting over pride and honor.

Chapter 5: Last Mover Advantage

• There are some startup companies that don’t make much money, yet they are valued higher than established companies with good cash flows. This seems illogical on its face, but there are actually good reasons driving this reality.
• An important part of the value of a company is how much potential it has for profit in the future. Established firms in established markets have competition; their margins are chipped away by market forces. Startups in innovative markets are more likely to have monopolies; their good days are still ahead of them. So even if the startup is losing money it may well be more valuable than the established company that turned a profit last year. Growth is fine, but for it to be any good, you have to endure. A company has to survive in order to succeed.
• There are some characteristics that are typical features of monopolies. Every company is different, but spotting these elements should help you to identify monopolies when you see them. Proprietary technology, for example, can give a company a major advantage. Companies with technology that offers something much better than the nearest competitor are well positioned to become monopolies. If the technology is only moderately better, however, then it will be seen as a marginal improvement. In a crowded market, it won’t impress anyone.
• Network effects make a product better. For example, the more friends you have on Facebook, the more valuable Facebook becomes to you. Network businesses usually need to start small and scale up, because it’s hard to get millions of people to join at once. Many firms miss opportunities to get in on these types of businesses when they start up, because they are so small that they don’t look very promising.
• Companies get stronger when they get bigger. Economies of scale means that the cost of running a business, like office space and engineering, doesn’t increase proportionally when the company gets bigger. Monopolies scale up well. Labor intensive industries, for example those that depend heavily on customer service, don’t scale well.
• A strong brand image can also strengthen a monopoly. Of course, there has to be substance behind the brand. One reason Apple has strong brand appeal is the high quality of its products. If a brand is little more than a cool name, it’s possible for its product to become a temporary fad, but it won’t have staying power.
• The lesson is to start small and monopolize. Once you have found your niche, scale up. But don’t intentionally set out to be disruptive. David taking on Goliath is a big drain of energy and beside the point. The whole idea of disruptive technology is totally overvalued. First-mover advantage is another. Sometimes it’s better to have the last significant boom and ride it longer. Think of business as a game of chess — your strategy is important; you have to consider the endgame in order to succeed.

Chapter 6: You Are Not a Lottery Ticket

• Some people say that success is the result of luck. Others attribute success to hard work. But if success really were just a matter of luck, there wouldn’t be those who have been successful in a series of enterprises. The argument may never be completely resolved; it’s not possible to run the kind of experiments that would be necessary to empirically prove whether success is the result of luck or hard work. Historically, however, most great thinkers say that success comes from hard work.
• People today pay too much attention to process and not enough to substance. People follow the rules for success, because they lack the inspiration to work toward a substantive goal.
• You can be an optimist or you can be a pessimist. You can have a concrete image of the future or one that’s fuzzy. And so, you can have these things in different combinations — for example, you can be a definite optimist or an indefinite pessimist.
• Indefinite pessimists believe the future will be dark, but they don’t have any ideas of how to change that. Decline is inevitable, so you might as well enjoy yourself in the meantime. Indefinite pessimists are certain the future will be bad, so people should prepare.
• Most of the western world was in a state of definite optimism from the 17th century until the 1960s or so. Scientists, engineers and businessmen knew they were making the world a better place. Things were great and constantly improving. Men dreamed big dreams and built big projects. The party ended in the 1970s, when indefinite optimism set in.
• In our current era, people think the world will get better, but they don’t know exactly how that will happen. So they don’t make any plans. Indefinite optimism includes the world of finance, because nobody knows what the market will do, but nevertheless, people keep investing in it. Politics and government have become indefinite, too, through myopic focus on the short term.
• Philosophers are mapped out on a definite/indefinite optimistic/pessimistic chart. Postmodern philosophers Nozick and Rawls share the indefinite optimistic quadrant. Although they may be different from each other, they’re products of this indefinite optimistic era that we live in. Another thing that’s indefinite? Biotech startups.
• The problem is that indefinite optimism isn’t sustainable. The future can’t get better if no one plans for it. We need to get back to a definite future. We have little power over philosophers or political pollsters, but we can return agency to our lives, according to Thiel, through the creation of startups.

Chapter 7: Follow the Money

• There is a pattern that’s consistent across many different areas of human endeavor: there are usually a few players whose productivity eclipses those around them. It’s called the 80–20 rule, so named by economist Vilfredo Pareto who noticed that 20% of the peapods in his garden produced 80% of the peas. This tendency for the few to dominate the many is known as the power law. It describes the exponential increase of effect at scale.
• The power law is the backbone of venture capitalism. Venture capitalists aim to find, fund and profit from early stage companies. These are high-risk investments, and many of the companies will fail. But high risk can bring high rewards. Eventually some of the enterprises will succeed splendidly. They will become part of the dominant 20% that win 80% of the earnings. This will cover the costs of the less successful investments and bring in a healthy profit, or so it’s hoped.
• It takes time for venture funds to pick a winner, and it takes more time for that winner to emerge from the rest of the pack. There are usually lots of early failures, which means that venture funds usually lose money at first. Venture capitalists just try to hang in there for the first few years, waiting for the kind of successes that will launch them into exponential growth.
• Just as most startups fail, most venture funds eventually fail. Fund managers usually aim for a diverse range of companies in their portfolio. Focusing on diversification makes it entirely possible that the few successful companies will be missed entirely. For this reason, venture companies should only fund enterprises that have the potential to pay off the entire investment of the whole venture company. This is a restrictive rule, and it means that venture funds will by necessity ignore a lot of promising businesses. It also means that venture companies can’t really afford to restrict themselves any further, because they risk overlooking the enterprise that will provide the big payoff. Venture companies need to find the businesses that can go from zero to one. Once they identify these businesses, they should back them with every resource at their disposal.
• It can be hard to stick to the discipline of the power law. It only becomes evident over time. Day-to-day experience teaches that some companies are more successful than others and that most companies produce within the range of average performance. It’s easy to get lost in these weeds. It’s also hard to dump companies once you are emotionally invested in them.
• In some respects, we are all investors, whether or not we’re venture capitalists. We invest a great deal of resources in pursuing a career. People try to stay diverse and try to avoid putting all their eggs in one basket. They hedge against uncertainty. Schools provide a generalized education. It is much better for people to focus relentlessly on something that will continue to be valuable in the future.
• Before you start a company, consider that it will likely fail. It’s much better to hitch your star to a company that has rapid growth. You might own 100% of your very own startup, but there’s a big danger that you’ll end up owning 100% of nothing. It would be much better to own 0.01% of a company like Google.