Zero to One by Peter Thiel - Notes on Startups and How to build the future.
By examining the lessons Peter Thiel gained from creating and selling PayPal, investing in Facebook, and becoming a billionaire along the way, his philosophy and approach for growing your firm successfully are examined in Zero To One, a book that offers an inside look at his thinking.
Insight 1: Thinking about the future.
Tomorrow will be different from today. If nothing changes, this definition puts the future 100 years away. Rapid change could bring the future tomorrow. We don't know much about the future, but we know it will be different from today's world.
There are 2 kinds of future advances:
1. Copying what works advances horizontally. If you have one typewriter and build 100 more, you've made horizontal progress. Doing anything new creates vertical advancement.
2. Zero to one. This level of advancement is unimaginable since it's never been done. Vertical progress means going from a typewriter to a word processor.
Globalization is horizontal progress or using goods from one area elsewhere.
Technological innovations drive vertical growth, and "technology" isn't only computers.
We often think we're nearing the end. Even the term "developed world" indicates that some countries are ahead and others need to catch up. If everyone uses our technology, it won't be sustainable. Our environment can't handle the pollution that "development" would cause. Globalization without technological improvements would be disastrous.
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.
Insight 2: Delusions are simple to believe. Conventional knowledge is convincing.
History helps clarify the mind and dispel misconceptions. Some individuals are nostalgic for the 1990s, although good and horrible things happened then.
1998-2000 saw the dot-com frenzy. Investors funded any startup. People left good-paying careers to start new enterprises, sure they'd get rich. Many people lost money because they were so confident in the dot-com economy. Silicon Valley's cognitive dissonance was scary. The common reason seemed quirky during the tech bubble and unbridled excitement.
The Dotcom crisis ended the good days and still affects Silicon Valley. It implanted in the Valley deep-seated views, especially distrust of ambitious visions. Small adjustments are safer. Agility became an important company trait. Instead of long-term goals, firms have to be lean and flexible. Improving existing products trumped establishing new markets.
Insight 3: Monopolies aren't always harmful. They are great for society and business.
How frequently have you griped about a Windows PC not performing a task the way you want it to? Please don't tell me; I've used Microsoft products before. Windows currently hold a monopoly with 75% of the market, but is it truly a terrible thing?
No! According to Peter Thiel, a monopoly is only when one business does something so much better than everyone else that no other business can possibly compete. It's truly advantageous to everyone.
Consider Google. Because you are aware that Google is the best search engine available, you adore using it. Google enjoys determining its own rates and keeping 25% of sales as profit in order to improve its services.
And society should be happy about it because if someone were to ever surpass Google, their search engine would have to be really wonderful! Monopolies are nothing to laugh at; in fact, they are what every company, especially a startup, should aim for.
Two perspectives on competitiveness exist.
In Marx's society, people have conflicts because they're different. Workers and the bourgeoisie have opposing goals and ideologies.
Shakespeare saw humans as mostly alike. But they fight anyhow. As they struggle, they grow alike.
Shakespeare is more accurate in the business. People get aggressive with rivals and lose focus. Google and Microsoft are like Romeo and Juliet's warring families because they're similar.
When fighting, battle hard and win. It's not about pride and honour, so select your battles.
Insight 4: The last mover advantage.
Startups that don't produce much money are valued higher than mature enterprises with solid cash flows. There are good grounds for this illogic.
A company's future profit potential affects its value. Established enterprises in established markets face competition and margin erosion. Innovative startups may have monopolies; their best days are ahead. Even if a startup is losing money, it may be more valuable than a profitable corporation. Good growth requires patience. Success requires survival.
Monopolies have certain traits. Every organisation is different, but these traits might help you spot monopolies. A corporation can benefit from proprietary technology, for example. Companies with superior technology can become monopolies. If the technology is only slightly better, it's a marginal improvement. It won't impress in a busy market.
Start small and dominate. After finding your niche, grow. Don't purposely cause trouble. David fighting Goliath is a waste of time. Overvaluing disruptive technologies. Also, first-mover advantage. Sometimes it's preferable to ride out the last boom. Business is like chess: strategy is key, and you must consider the endgame to succeed.
Insight 5: Without a clear vision from the beginning, a business cannot go from nothing to anything.
However, creating a monopoly is not something that happens overnight. In order to finally use their dominant position to sell the business, Thiel and a 50-person Paypal team worked for years to make it the preferred payment processor for eBay consumers.
Where did they get the inspiration to keep going? Vision, in a nutshell.
90% of the founders of prosperous companies are, in a sense, weirdos, if you look at them. The most notable example is Steve Jobs, but there are many other entrepreneurs who are quirky, and that's excellent.
To create a great, if slightly irrational, vision for the future—exactly what businesses require to move from zero to one—leaders must be a little strange.
Thiel predicted that PayPal would offer people more direct control over their currency than ever before back in 1999. a mouthful? Sure! Yet he was correct. He had a completely different picture of the future than the one he was living in, and the motivation it gave him and his team allowed them to build the future they had imagined.
Therefore, consider the big picture. Shoot for the moon, they say. If you miss it, you'll still be in the spotlight.
Insight 6: You're No Lottery Ticket.
Some claim luck determines success. Some credit hard work. If luck were all that mattered, there wouldn't be people who have succeeded in multiple businesses. It's impossible to undertake the trials needed to determine whether success is due to luck or hard work. Most great thinkers claim hard work leads to success.
Indefinite pessimists predict a grim future but have no solutions. Enjoy yourselves for the decline is inevitable. Indefinite pessimists predict a gloomy future, therefore prepare.
From the 17th century until the 1960s, the western world was optimistic. They knew they were improving the world. Things were improving. Big-dreaming men developed big projects. In the 1970s, optimism took over.
People believe the world will improve, but they don't know how. They don't plan. Nobody knows what the market will do, but people keep investing in it. Short-sightedness has made politics and government indeterminate.
A definite/indefinite optimistic/pessimistic chart depicts philosophers. Nozick and Rawls are postmodern optimists. Although they're distinct, they're products of our optimistic period. Indefinitely? Startup biotech.
Unending optimism can't last. Without planning, the future can't improve. We need a plan. We have limited control over philosophers or political pollsters, but we can create startups, says Thiel.
Insight 7: Secrets.
Peter advises against horizontal progress. Even if it might feel like there is no room for vertical progress, the world has a vast number of secrets left to be found. These secrets are hard to discover, but not impossible.
Suppose you are unwilling to take a risk and go for vertical progress. In that case, you will be stuck producing conventional products in a competitive market. Peter provides the example of Hewlett-Packard. In the 1990s, Hewlett-Packard had the best technology and used it to bring out one innovative product after the other. However, in the early 2000s, they stopped chasing secrets and just kept to the status quo. Through doing this, the company lost half its market value.
Insight 8: Startups Need a Solid Foundation.
For a company to survive long-term, it has to lay down a solid foundation at the start.
The first piece of a company’s solid foundation is the people who work for the startup. Hence, finding the right people is integral to the company’s success. As startups are so small, the actions of each individual are even more critical. From personal experience, Peter explains how you need to hire people who can work well together. Before co-founding PayPal, Peter invested in a company that his future co-founder had started with someone he barely knew. Personal differences led to the company failing, and Peter losing all of his investment.
Finally, a strong culture is crucial for startup’s success. Strong company cultures help employees to feel like they are part of something greater. Plus, strong company cultures can improve the efficiency with which the company’s teams work together. You cannot develop a company culture purely by offering perks to your employees. Instead, the most important thing is that you develop strong relationships with and between your employees. This is the culture that Peter had while working at PayPal. The team was so cohesive that many of the people working there moved on and started new companies together later.
Insight 9: 7 Questions every startup should answer.
The Engineering Question: Can you create breakthrough technology instead of incremental improvements? A 20% improvement is not enough.
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? For Thiel’s venture capital fund (Founders Fund), the common red flag was that the CEO was wearing a suit. This meant the CEO would look like a salesman, but won’t sell or do tech.
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?
Peter recommends ensuring that your innovative company can give a minimum of 5 correct answers out of 7.
Beyond 20 or 30 years, predictions are risky. Our future has four possible outcomes. The past saw good and awful moments. This trend may be unavoidable, and the cycle may continue forever. The prevailing view is that modern innovations will break the cycle and make things less terrible. You don't have to be a pessimist to think we're moving toward extinction. Wars and difficulties, then we're done. We'll have a much better future, according to optimists. This last choice, hopefully. We'll hopefully hit one.