From Zero To One by Peter Thiel with Black Masters – Book Summary

‘Zero to One' is about why to build companies that create new things. Indeed, it is about the ways enabling startups to become zero to one in almost no time.

Who will be the next Bill Gates? Which Company will he or she build? Will the next big thing be an OS, a social network, or a search engine? Thiel asserts, in his book Zero To One, that the future Titans of the industry would create something entirely new, and not copy existing ideas.  All these people were zero initially. But they became zero to one with significant efforts.

Here we go with the summary of the book:

 

The Central Idea Of The Book: Zero To One

All of us find comfort in the familiar, the known, and place a high value on the tried and tested. Contrarily, man is given the power of imagining something new. This is the ability of man which ensures evolution. Evolution leads to discovering, developing, and inventing new things and methods. The man of early ages has always led the way for the people to come. They adopted the habits which led to highly effective outcomes in the future. And it is they, who have built the past and the present, and will build the future.

Copying existing ideas and adding value time by time can be a successful method of building a business. But, the actual sign of progress in breaking through new limits.

The text coming next will describe:

• Why technology is more important than globalization
• How the dot-com bubble manifested itself
• Why a monopoly is an entrepreneur’s best friend.

 

A Brave New World: Technology Matters More Than Globalization

Progress can be horizontal as well as vertical. What can be termed as horizontal progress is copying existing technologies and ideas and implementing them in different parts of the world? Vertical Progress, on the other hand, is enabled by new technologies, which lead to completely new ways of doing things. Globalization leads to normalization, not to a giant leap forward. This does not mean that Globalization is bad, just that it is not what would give rise to a better future in light of limited resources.

The emerging Asian giants like Pakistan, China, and India would not be able to raise their standards of living by reusing existing technology. Rather, they need to adopt new technologies to run parallel to the rest of the world. Thus, new technologies create new resources and make existing technologies reusable. Because new technologies come with more efficiency and accuracy.

Conventional wisdom is good for horizontal progress. But, the people who follow status do not change the world. Thiel often asks interviewees about some popular truths over which they have a different view. This is important because to be able to imagine and create new technologies. It is important to understand how critical it is to follow the status. We live in present and whatever we do brings the future. So being very cautious about progress is very significant.

Truthfully, how we want to present ourselves affects how we follow the status. Only the ones who can challenge the status quo and question existing beliefs can build something unique.

 

Startup Phenomenon: Craze & Bubble Leading A Zero To One

In large companies, it is easy to lose yourself in the crowd. And even breakthrough ideas may be lost due to bureaucratic inefficiencies. Thus, it is a big achievement for a single person to create an entirely new industry. The industry impacts significantly. To get this aim, the industry should be flexible and brilliant at the same time. However, it has not always been favorable for the “start-up scene.”

The startup “craze” so to speak, started off in the early 1990. There was not much to look forward to in those days. With the East Asian monetary crisis, the American recession, the fall of the Russian Ruble, and a plethora of government bailouts, the world was in disorder. The only thing which was working and held great promise was the internet.

The advent of the internet had led to immediate access to information and new markets. Netscape leveraged this boom by launching its web browser. And soon captured nearly 80% of the market. Companies like Yahoo and Amazon went public with very high valuations. However, very soon things became free for all. “Founders” realized that just by floating a venture which had a dot-com attached to its name, they could achieve success in the form of crazy valuations in the “new economy.”

The market was flush with funds for all kinds of internet ventures. Thiel notes that in this scenario, his own Company Paypal emerged as a venture which wanted to create a mechanism to effect payments. And a mechanism to leverage the power of the internet. After a few hiccups, their focus on payments via email gained ground. And the company started growing.  Further, the company just managed to close large funding round before the dot-com bubble burst in 2000.

 

Incremental Improvements: Post Dot-Com Shakeup

While Paypal emerged unscathed and went from strength to strength, eventually being acquired by eBay in 2002 for 1.5 billion dollars, the end of the dot-com craze was marked with numerous failures in the internet space. The Nasdaq plummeted by 34% within a month and eventually bottomed out in 2002 to almost 20% levels of its peak value achieved in March 2000. Gradually, people started learning new rules of start-ups.

Steady replaced the bold. Gradual improvement became the new ground for start-ups. And it has thrown away the concept of overnight change. People started focussing on starting from zero to being one. Just like they started thinking of a startup from the very basics. Products started gaining focus and the focus on sales declined at the beginning. The virtue of the tried and tested, and the presence of competition became the dominant guideline for new ventures. If you have competition then it means that the business idea is viable. Otherwise, why should anyone want to work on it? However, Thiel, expressing in his book Zero To One, considers these learnings as mistaken. He asserts that it is better to be bold than nothing. And focus on a future sales plan as well as the product.

A plan is always better than no plan. And competition always consumes profits. This, in the long run, prevents investments in new technologies. The dot-com bubble was characterized by false arrogance amongst the founders and investors alike. At the same time, most successful startups did not have answers to the questions asking how a vision can be so successful.

 

Startups Lack Big Success Without Necessary Answers: Hurdles In Becoming Zero To One

Any business must be able to present its position in the industry and its impact on it. If it cannot answer certain key questions, then it is likely that it will fail. What are these secret questions which if answered, can provide a blueprint for success? Thiel considers seven key issues for any start-up to answer before it considers the possibility of going from zero to one.

 

Seven Key Issues

These seven key issues are:

Key Issue# 1

Do you have proprietary technology? The technology must be at least ten times better than the existing one, to be able to create any significant value.

Key Issue# 2

The timing of the business is also of key importance. Because a good idea with the support of new technology may fail to take off. Because of its being untested and tried. For example, Andrew Wilson, the CEO of a cleantech Company called SpectraWatt, had claimed in 2008, that their industry was at a similar point in history as the microprocessor industry was in the late 1970s. However, the analogy was false. Since the speed of the microprocessors had grown significantly in the ’70s. While cleantech was still experiencing gradual linear growth.

Key Issue# 3

Another question to consider over is the nature of your market. Can you hope to extract a significant share of a small market? Or is the market so big that the competition is so powerful? Getting a significant proportion of a small market with no competition or limited competition is always better than getting a tiny share of a huge market. And further hoping to get a larger share while competitors consume your profits.

Key Issue# 4

While businesses emerge from ideas, those ideas are put into practice by humans. So, another important thing to consider is your team. Who are the ones behind the idea? Who is going to run the business? In the case of a technology company, it is important to have a tech team running it, so that they can build the product that they and their customers want. Most of the cleantech Companies before they went bust, were being run by a nontechnical MBA-type team. And not surprisingly they failed during the cleantech bubble later in 2008.

Key Issue# 5

While the focus on the product is essential, the sales can also not be ignored. It is necessary to figure out a distribution mechanism for your product or technology. You must focus on how your customers will get access to your product, and how it will generate value. The Israeli Company “Better Place,” raised about 800 million dollars in 5 years between 2007-2012. It ended up selling itself for a paltry sum of 12 million dollars. because even though their technology was good, they had failed to market it properly. And could not get enough sales.

Key Issue# 6

Businesses should also be able to answer what the future will look like in a decade or two. And if their idea or technology be still relevant. For example, Iridium was the world’s biggest satellite phone company and was doing pretty well for a few years. However, they had failed to answer the question of technological durability. And soon a cheaper and more efficient technology of GSM phones took them over.

Key Issue# 7

The final question to answer is: Is there any unique thing about your Company? Or a unique value that you can identify, which others in your field cannot? This is also a critical question to answer. Since all successful Companies have reasons unique to them for their success.

 

Achieving Monopoly: The Peak Performance Level For A Company

For a business, competition is the biggest danger to profitability. Competitors reduce your profitability. And reduced profitability means a reduced ability to invest in new technologies.

Start-ups are small organizations. Hence, they do not have the resources to tackle and compete in large markets. Hence, they should target a small market which they can hope to rule. A monopolized small market enhances and protects profitability. And the resultant strong financial and market metrics can give a start-up. This is an ability to scale up and capture new markets.

There are four key traits of a monopoly, and start-ups should consider all these aspects to build and sustain a monopoly:

 

Four Key Traits Of Monopoly

1. Technological Edge: Do you have technology that no one else can replicate? Either the technology should be completely new, or at least ten times better than the nearest competition. Even a superior design that is ten times better than the competition can achieve the same effect as proprietary technology. This was the case with Apple when it successfully launched the first iPad.
2. The network: Why is it that you mostly use Whatsapp or Facebook, and not any other messenger or social network? The answer is that your friends are on those platforms. So it makes sense for you also to be there. This dynamic of the network is very powerful in the case of a start-up. To realize the true power of the network, your product must have the value which the people prefer to adopt early.
3. Economies of scale: The bigger the monopoly, the lower the fixed costs. A promising business must be naturally scalable.
4. Branding: A brand is a promise of trust. A brand can command immense loyalty from its customers. And thus, the creation of a brand can enable a business to become a monopoly. Take the example of Apple or Google. They are monopolies in their own fields, and their profitability shows it.

 

Choose The Right Co-Founders: The Way To Give A Strong Base To Your Startup

Foundations are just as important for a start-up, as they are for a building. If the foundation is weak, the future will suffer. Therefore, choosing cofounders is the most critical factor in a start-up’s journey. Often the wrong cofounders lead to the failure of a new Company. A co-founder is good enough if he has the same vision as that the founder. And he has the same skill set as well.

Thiel also places much value on how much history do the cofounders have with each other. To him, this is another unforeseen hurdle in becoming Zero To One. That is, whether the co-founders have been associated with each other professionally and personally. Not only there is a clash between the founder and co-founder often. But, we also see a clash between investors and founders/co-founders as well. Investors may want monetization and revenues much earlier than what the founders foresee. Or they may want the Company to steer in a different direction than the founders’ vision. The best way to reduce such friction is to have a small Board that governs the Company. The larger boards are often ineffective

The problem of paying high salaries also arises on many occasions. And Thiel prefers the founders paying themselves a lower salary than what they may command in a regular job. A higher salary hints at high status. And it can be lethal for a startup. Founders should be compensated more like equity, than cash. However, the allocation of equity should also be done carefully, and by the value, one brings to the table. Compensating with an equal value of equity can not be good as it looks. And unequal value equity may also bring a clash.

 

Conclusion: Zero To One

In Zero To One, Peter Thiel emphasizes the value of imagining and doing a business that has never been done before. The impact such a business has is always significant and changes the world for the better. While Thiel does not disvalue Globalization, he asks rather focus on technology in the long run. As technology-oriented businesses bloom more and sooner.

The book lays down a blueprint for success in the form of questions that any start-up should ask itself. Peter Thiel does not give a step-by-step formula. Rather, he gives a perspective to follow. A perspective which founder, co-founder, and investors can follow to take the start-up to its peak. And improving level from Zero To One.

While most of us associate the word monopoly with negative aspects, Thiel asserts the opposite. Monopolies are the best thing that can happen to a business, and every startup should aim at becoming one.