Zero to One by Peter Thiel
Summary and high-yield notes
Date finished: March 12, 2021
3️⃣The book in three sentences
Every startup should start by dominating a small market because it is easier to dominate a small market that a large market
After building a product, have an effective way of selling it.
Every entrepreneur should plan to be the last mover in her particular market. That starts with asking yourself: what will the world look like 10 and 20 years from now, and how will my business fit in?
Peter Thiel provides practical examples using experience he had while founding Paypal and his other startups.
One of the best startup books I have read, if not the best.
✍️Summary + high-yield notes
Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.
“When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things— going from 0 to 1.”
“The single word for vertical, 0 to 1 progress is technology.”
🎊Party like it’s 1999
The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:
(i) Anyone who claims to be capable of great things is suspect, and anyone who wishes to change the world should be more modest. The only safe way forward is to take small, incremental steps.
(ii) All businesses must be "lean," which translates to "unplanned." You should not know what your company will do; planning is arrogant and rigid. Instead, you should "iterate" and approach entrepreneurship as agnostic experimentation.
(iii) Don't try to start a new market too soon. Because the only way to know if you have a real business is to start with an existing customer, you should build your company by improving on products already offered by successful competitors.
(iv) It's not good enough if your product requires advertising or salespeople to sell it: technology is primarily about product development, not distribution. Because bubble-era advertising was obviously wasteful, viral growth is the only sustainable growth.
And yet the opposite principles are probably more correct:
It is better to risk boldness than triviality.
A bad plan is better than no plan.
Competitive markets destroy profits.
Sales matters just as much as product.
Consider how much of your knowledge of business is shaped by incorrect reactions to past mistakes. The most contrarian thing to do is to think for yourself rather than to oppose the crowd.
😄All happy companies are different
In Economics 101, "perfect competition" is both the ideal and the default state. When producer supply meets consumer demand, a market is said to be perfectly competitive. In a competitive market, every firm is undifferentiated and sells the same homogeneous products. Because no firm has a monopoly on the market, they must all sell at whatever price the market determines.
If there is money to be made, new firms will enter the market, increasing supply, driving prices down, and thus eliminating the profits that drew them in. If there are too many firms in the market, they will lose money, some will fold, and prices will rise back to sustainable levels. Under perfect competition, no company makes an economic profit in the long run.
Monopoly is the polar opposite of perfect competition. A competitive firm must sell at the market price, whereas a monopoly owns its market and can therefore set its own prices. It produces at the quantity and price combination that maximises its profits because it has no competition.
The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
“Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized, and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition.”
“Non-monopolists tell the opposite lie: “we’re in a league of our own.” Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make. The fatal temptation is to describe your market extremely narrowly so that you dominate it by definition.”
Every happy company is unique: each one earns a monopoly by solving a distinct problem. All failed businesses have one thing in common: they were unable to avoid competition.
🏆The ideology of competition
People within a company become obsessed with their competitors in order to advance in their careers. The firms then become obsessed with their competitors in the market. People lose sight of what is important in the midst of human drama and instead focus on their adversaries.
You're less likely to do the same things as everyone else if you're less sensitive to social cues. If you're interested in making things or programming computers, you'll be less afraid to devote your full attention to those activities and thus become incredibly skilled at them.
When you apply your skills, you're less likely than others to abandon your own convictions, which can save you from becoming entangled in crowds competing for obvious prizes. Competition can lead to people seeing opportunities where none exist.
🌗The last mover advantage
“For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports. However, you can hit those numbers and still overlook deeper, harder-to measure problems that threaten the durability of your business.”
If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.
The most obvious way to make a 10x improvement is to create something entirely new. If you create something valuable out of nothing, the increase in value is theoretically infinite.
“Network effects make a product more useful as more people use it. For example, if all your friends are on Facebook, it makes sense for you to join Facebook, too. Unilaterally choosing a different social network would only make you an eccentric. Network effects can be powerful, but you’ll never reap them unless your product is valuable to its very first users when the network is necessarily small.”
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. Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one.
Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.
“Amazon shows how it can be done. Jeff Bezos’s founding vision was to dominate all of online retail, but he very deliberately started with books. There were millions of books to catalog, but they all had roughly the same shape, they were easy to ship, and some of the most rarely sold books— those least profitable for any retail store to keep in stock—also drew the most enthusiastic customers. Amazon became the dominant solution for anyone located far from a bookstore or seeking something unusual. Amazon then had two options: expand the number of people who read books, or expand to adjacent markets. They chose the latter, starting with the most similar markets: CDs, videos, and software. Amazon continued to add categories gradually until it had become the world’s general store.”
It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.
🎰You are not a lottery ticket
“An indefinite pessimist looks out onto a bleak future, but he has no idea what to do about it. This describes Europe since the early 1970s, when the continent succumbed to undirected bureaucratic drift.”
”A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it. Perhaps surprisingly, China is probably the most definitely pessimistic place in the world today. When Americans see the Chinese economy grow ferociously fast (10% per year since 2000), we imagine a confident country mastering its future. But that’s because Americans are still optimists, and we project our optimism onto China. From China’s viewpoint, economic growth cannot come fast enough. Every other country is afraid that China is going to take over the world; China is the only country afraid that it won’t.”
”To a definite optimist, the future will be better than the present if he plans and works to make it better. From the 17th century through the 1950s and ’60s, definite optimists led the Western world. Scientists, engineers, doctors, and businessmen made the world richer, healthier, and more long-lived than previously imaginable.”
”To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely.”
Definite optimism works when you create the future you want. Definite pessimism operates by creating what can be replicated without expecting anything new. Indefinite pessimism works because it is self-fulfilling: if you're a slacker with low expectations, those expectations will most likely be met. However, indefinite optimism appears to be inherently unsustainable: how can the future improve if no one plans for it?
A startup is the largest endeavour over which you have complete control. You can have control not only over your own life, but also over a small but significant portion of the world. It begins by rejecting Chance's unjust tyranny. You are not a lottery ticket.
💸Follow the money
“For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented. If anything, too many people are starting their own companies today. People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it’s growing fast.”
“The power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million as of this writing).”
Recall the business version of our contrarian question: what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. If there are many secrets left in the world, there are probably many world-changing companies yet to be started.
“There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?”
The best place to look for secrets is where no one else is looking.
Companies are analogous to countries in this regard. Bad decisions made early on, such as selecting the wrong partners or hiring the wrong people, are extremely difficult to reverse. It may take a bankruptcy-level crisis before anyone attempts to correct them. As a founder, your first priority should be to get the basics right, because you cannot build a great company on a shaky foundation.
When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim.
“As a general rule, everyone you involve with your company should be involved fulltime. Sometimes you’ll have to break this rule; it usually makes sense to hire outside lawyers and accountants, for example.”
”A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.”
👨🔧The mechanics of mafia
Recruiting is an essential skill for any business. It should never be delegated. You need people who are not only skilled on paper but will also work well together once hired. Large equity stakes or high-profile responsibilities may entice the first four or five. More important than those obvious benefits is your response to the following question: Why should the twentyth employee join your company?
The startup uniform encapsulates a simple but essential principle: everyone at your company should be different in the same way—a tribe of like-minded people fiercely devoted to the company’s mission.
“The best startups might be considered slightly less extreme kinds of cults. The biggest difference is that cults tend to be fanatically wrong about something important. People at a successful startup are fanatically right about something those outside it have missed. You’re not going to learn those kinds of secrets from consultants, and you don’t need to worry if your company doesn’t make sense to conventional professionals. Better to be called a cult—or even a mafia.”
🤔If you build it, will they come?
If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product. In general, the higher the price of your product, the more you have to spend to make a sale—and the more it makes sense to spend it.
“A product is viral if its core functionality encourages users to invite their friends to become users too. This is how Facebook and PayPal both grew quickly: every time someone shares with a friend or makes a payment, they naturally invite more and more people into the network. This isn’t just cheap—it’s fast, too. If every new user leads to more than one additional user, you can achieve a chain reaction of exponential growth.”
🧠The founder’s paradox
👨💼The business lesson is that we require founders. We should be more tolerant of founders who appear strange or extreme; we need unusual people to lead companies beyond mere incrementalism.
The lesson for founders is that individual prominence and adulation can only be enjoyed if it can be exchanged for individual notoriety and demonization at any time—so be cautious.
💡Above all, don't overestimate your own personal power. Founders are important not because they are the only ones whose work is valuable, but because a great founder can bring out the best in everyone in his company.
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