Introduction: Zero to One by Peter Thiel
Having not consistently read business books in many years, in the past three months, there has been a slate of business books that I wanted to read and Zero to One was one of those books. The one way I would describe Zero to One after reading it, is that it is a breath of fresh air. I stayed away from business books because they seldom make you think, and some of them are so dry that it is torture to finish reading them. This is not the case with Zero to One.
Note: Zero to One by Peter Thiel is not a how-to book, but it’s loaded with lots of information that the reader can use. This post has been updated. It was first published on February 5, 2015.The one way I would describe Zero to One after reading it, is that it is a breath of fresh air.Click To Tweet
Content: Zero to One by Peter Thiel
There are many important lessons and other information to learn from Zero to One by Peter Thiel, a few of them I am highlighting here. These include vertical vs horizontal progress, the difference between definite and indefinite optimism, how to find secrets to create a niche market, things that hold us back, seven questions that every business must answer and much more.
So, what does zero to one mean?
According to Thiel,
“Horizontal or extensive progress means copying things that work – going from one 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 zero to one.”
An example of horizontal progress is the many iterations of a typewriter, and vertical progress is moving from typewriter to computer word processor. The introduction of the word processor made typewriters obsolete because it was game changing. It is difficult to imagine vertical progress because it entails doing something that’s never been done before.
Entrepreneurs who were able to ride through the dotcom crash in Silicon Valley learned four lessons, but are they the right lessons?
Zero to One by Peter Thiel: 4 Lessons from the Dotcom Crash
- Make incremental advances: Small incremental steps are the only safe path.
- Stay lean and flexible: Try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.
- Improve on the competition: Build your company by improving on recognizable products already offered by successful competitors.
- Focus on products not sales: Technology is primarily about product development, not distribution.
But Thiel thinks the better lessons from the dotcom crash:
- It is better to risk boldness than a triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matters just as much as the product.
Peter Thiel spent a considerable amount of time in Zero to One discussing monopoly.
“In the dynamic world that we live in, it’s possible to invent new and better things. Creative monopolies give customers choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.”
Zero to One by Peter Thiel: Characteristics of Monopoly
- Proprietary Technology: This is the most substantive competitive advantage a company can have because it makes it difficult or impossible to replicate the product. Proprietary technology must be at least 10 times better that its closest substitute to lead to real monopolistic advantage.
- Network Effect: Makes a product more useful as more people use it.
- Economies of Scale: Gets stronger as it gets bigger. A good start-up should have the potential for great scale built into its first design.
- Branding: Creating a strong brand is a powerful way to create a monopoly
Have you read?
Zero to One by Peter Thiel: How to Build a Monopoly
- Start small and monopolize: Every monopoly dominates a large share of its market. Start with a small market, then expand from there.
- Scaling up: Once you create and dominate a niche market, then gradually expand into adjacent and slightly broader markets.
- Don’t disrupt: Disruption is an overused word. Disruption attracts a lot of attention, and if you are building a monopoly, that’s the last thing you want or need.
I loved the section in the book on definite and indefinite optimism and pessimism. Sounds confusing? It really isn’t. Think of a graph, on the horizontal axis you have a scale, definite to indefinite. And on the vertical scale you have pessimism to optimism. The definite optimist thinks the future will be better than today if he plans for it. This is the best place to be because you are not thinking doom and gloom, or pie in the sky. You will weather nearly any storm with optimism and a realistic and definite plan.
Zero to One by Peter Thiel: Things that Hold Us Back
Incrementalism: We are socialized to take baby steps, therefore we seldom overachieve.
Risk aversion: We also learn to play it safe, so we avoid any risk. But little risk yields little reward.
Complacency: Why search for a new solution when the old one works just fine. If it isn’t broke, don’t fix it.
Flatness: As globalization expands, we perceive that the world as homogenous and highly competitive – we see the world as flat, so we don’t explore new ways of doing things.
Zero to One by Peter Thiel: How to Find Secrets
I was particularly interested in this section of the book for personal reasons. Thiel reports that there are two types of secrets: Secrets about nature and secrets about people. So the two questions are – what is Nature not telling you? And what secrets are people not telling you?
“The best place to look for secrets is where no one is looking… So you might ask: are there any fields that matter, but haven’t been standardized and institutionalized?”
This section was not as clear as I would have liked. I think a good place to discover secrets is by looking at failed products in the past. Did they fail because they were ahead of their time or because the technology didn’t exist to make them work?
The first computer programmer, Ada Lovelace, wrote a program for Charles Babbage’s “perceived” Analytical Engine. She couldn’t test if the machine or her program worked because the technology wasn’t available to build the machine. Over a century later, based on the instructions, and when the technology became available, the London Science Museum, built the machine, and it did exactly what it was supposed to do. Ada Lovelace would have been able to test her program and debug it if necessary.
Zero to One by Peter Thiel: Seven Questions Every New Business Must Answer
Before you start a business, there are seven questions that you should first answer.
- The Engineering Question: Can you create breakthrough technology instead of incremental improvements? Think about the user, will what you have to offer a substantial improvement over what she already has access to? The technology has to offer at least a 10 times improvement over what the customer has access to.
- The Timing Question: Is now the time to start your business? What’s happening in the industry you want to enter? Is it over-saturated or poised for growth? Entering a slow moving industry can be a great strategy if you have a definite and realistic plan to take it over.
- The Monopoly Question: Are you starting with a big share of a small market? Is what you are offering unique? If you can’t monopolize a unique solution for a small market, you’ll be stuck with vicious competition.
- The People Question: Do you have the right team? Do you have the right people in place for the right functions and that fit the culture? Hire people who enjoy working together. Do not offer perks without substance. Give people the opportunity to do irreplaceable work alongside other great people.
- The Distribution Question: Do you have a way to create and distribute your product? Selling and distributing the product is as important as the product itself.
- The Durability Question: Will your market position be defensible 10 and 20 years into the future? Plan to be the last mover in your industry. You have to anticipate competition.
- The Secret Question: Have you identified a unique opportunity that others don’t see? The greatest companies have secrets: specific reasons for success that other people do not see.
Conclusion: Zero to One by Peter Thiel is Worth the Investment
Investing in a copy of Zero to One (Amazon link) by Peter Thiel is money well spent. If you are looking for a how-to book, this book is not for you.