Zero to One – Blake Masters, Peter Thiel
This book is a must read in Silicon Valley.
New and unique versus more of the same
PayPal was in 2001 the only email-based payments company in the world. It employed fewer people than the restaurants on Castro Street (Mountain View, CA), where the Paypal team used to go for lunch. The business was much more valuable than all of those restaurants combined.
Starting a new restaurant is a really hard way to make money. If you lose sight of competitive reality and focus on trivial differentiating factors, maybe you think your naan is superior because of your great-grandmother’s recipe, your business is unlikely to survive.
Think for yourself
“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”. Is the advice given throughout the book.
Thiel encourages you to think differently, but most of all, to think for yourself.
Capitalism and competition are opposites
Thiel argues that capitalism and competition are opposites.
Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away.
Because creating value is not enough, you also need to capture some of the value you create.
The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Aim to build a monopoly
Aim to build a company that is so different and ahead of the others that it’s not even competing.
A monopoly enables you to:
Allocate more resources towards innovation and long-term plans.
Stop focusing on generating revenue to survive.
Competition narrows your focus on beating the other companies. While this makes you good at that which you are competing on, it doesn’t guarantee success.
You risk losing sight of the big picture and of what is important for future growth, if you keep relating to what your competitors are doing.
Create the future
The future is a time when the world looks fundamentally different from today.
We need two types of progress to create the future:
Horizontal progress/Globalization (from 1 to n) – Copying things that work somewhere and making them available everywhere.
Vertical progress/Technology (from 0 to 1) – Doing new things that nobody else has ever done.
Happy or Not?
“All happy families are alike; each unhappy family is unhappy in its own way.”
The quote with which Tolstoy opens Anna Karenina might describe people, but for businesses it’s the opposite: All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
Cash vs. Equity
You need to get the right balance between cash and equity when rewarding employees:
Cash is about compensating people for the job they are doing today.
Equity orients people toward increasing the company’s value in the future.
High cash compensation teaches employees to claim value from the company as it is today, instead of investing their time to create new value in the future.
The value of a business today is the sum of all the money it will make in the future.
Zero to One explained
Progress can take one of two forms:
- Going from 1 to n: horizontal or extensive progress means copying things that work -. Horizontal progress is easy to imagine because we already know what it looks like.
- Going from 0 to 1: Vertical or intensive progress means doing new things. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.
Example: If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress..
Seven questions every business must answer
Technology – Can you create a breakthrough technology instead of incremental improvements?
Timing – Is now the right time to start your particular business?
Monopoly – Are you starting with a big share of a small market?
People – Do you have the right team?
Distribution – Do you have a way to deliver your product?
Durability – Will your market position be defensible 10 and 20 years into the future?
Secrets – Have you identified a unique opportunity that others don’t see?
The Premise
Zero to One is about how to build companies that create new things
The book draws on Thiel’s experience as a co-founder of PayPal and Palantir, investor in hundreds of startups, including Facebook and SpaceX. Thiel cautions the book offers no formula for success. Such a formula cannot exist as every innovation is new and unique.
The most powerful pattern he has noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
Proprietary technology
Proprietary technology is a great advantage on which you can build a monopoly business because it makes it difficult for other companies to replicate your product.
However, for proprietary technology to offer an advantage, it needs to be 10x better than existing solutions. You can achieve this by inventing something new or radically improving an existing solution.
Get the right co-founder
Choosing a co-founder is a crucial decision at the start of every company – one that’s very hard to correct. You should team up with someone that has complementary skills and with whom you share a prehistory.
A great founding team is critical for the success of the startup. They draw people in with their vision, get alignment across teams, inspire loyalty, and bring out the best work from everybody.
Start with a small market and dominate
Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market.
The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
Seven questions that every business must answer
- The Engineering Question: can you create breakthrough technology instead of incremental improvements?
- The Timing Question: is now the right time to start your particular business?
- The Monopoly Question: are you starting with a big share of a small market?
- The People Question: do you have the right team?
- The Distribution Question: do you have a way to not just create but deliver your product?
- The Durability Question: will your market position be defensible 10 and 20 years into the future?
- The Secret Question: have you identified a unique opportunity that others don’t see?
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
Do your own recruiting
Attract people by explaining why your mission is compelling and why your company is a unique match for them.
Select only people that match your criteria and can be involved full-time.
Build a team of skilled people that can work together cohesively.
Myths are important and dangerous
The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.
But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.
Our task: go from 0 to 1
Our task today is to find singular ways to create the new things that will make the future not just different, but better – to go from 0 to 1.
The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.
Start with a niche market
Startups should start with a very small market because it’s easier to dominate than a large one. Once you dominate it, scale up and move into adjacent broader markets.
The perfect target market for a startup is a small group of particular people that are served by few or no competitors.
Characteristics of successful monopolies
Every monopoly is unique, but they usually share some combination of:
- Proprietary technology: a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
- Network effects: keep in mind that you’ll never reap network effects unless your product is valuable to its very first users when the network is necessarily small.
- Economies of scale: A good startup should have the potential for great scale built into its first design.
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