By: Peter Thiel and Blake Masters
33-MINUTE AUDIO / 4,500 WORDS (16 PAGES)
Tap into a new way of thinking about business and ambition by reading this book summary. Zero to One will challenge you to think for yourself on topics such as technology verus globalization, business monopolies versus competitive markets, and the mindset you really need to make a difference in the world. Learn from tech superstar Peter Thiel (PayPal, Palantir) and his protégé Blake Masters why the only opportunities really worth pursuing are those that create something truly unique – that go from “zero to one” rather than from “one to n.” And, learn the seven questions you should be asking yourself to find out if what you’re working on passes that test.
TOP 20 INSIGHTS
Creating truly innovative technology requires progressing from “zero to one” rather than from “one to n.” This means creating something entirely new rather than incrementally adding to what already exists.
One way to move from “one to n” is globalization, or enabling new markets to access something that has already been created. But, because resources are not infinite, globalization needs to be accompanied by new technologies to make the consumption of goods more efficient and sustainable, or else global ills will result.
The world needs startups as an engine to both envision and create the future. Though there has been new technology lately, there are still many aspects of everyday life that are begging for improvement, given the right vision and strategy.
The dot-com crash of the 1990s taught entrepreneurs lessons about how to build a business that, when followed today, hinder the development of real technological innovations and sustainable growth. These “rules” should be ignored.
Monopolies generate good for the world. If a business has achieved a monopoly, it indicates that the business has truly gone from “zero to one,” and created something for society that did not exist before or improved upon an existing technology to such a degree that it has made the old technology obsolete.
To create this sort of change it is helpful to be a “definite optimist” – someone who believes that “the future will be better than the present if he plans and works to make it better.” This kind of worldview enables the vision, gumption, and persistence to go from zero to one.
Monopolies also generate good for the world because of the privilege that major profits allot. “Since [Google] doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products, and its impact on the wider world.”
Monopolies are more ubiquitous than we’re led to believe and shape their stories to avoid scrutiny and regulation. For example, if Google is seen primarily as a search engine company, they own 68% of that market. In contrast, if they’re described as playing in the global advertising market, they only own 3.4%.
Monopolies are only bad when a business lingers in that position unchallenged for too long. Ideally, new monopolies take over, “adding entirely new categories of abundance to the world.” (Think of how Apple’s “mobile computing” replaced Microsoft’s hold on the PC market, who itself supplanted IBM’s “hardware monopoly” of the 1960s and 1970s.)
The key to creating a monopoly is to resist copying others’ business models and instead to think for yourself. Prioritize four aspects of your business over a hyper-focus on growth: proprietary technology, network effects, economies of scale, and branding.
Rather than initially painting a grandiose vision of global market dominance, the best way to build a monopoly is to start small. Capture a small, specific market with the tentacles to easily branch to related markets over time.
Know that venture capital firms typically make their money by finding the one single startup that will outperform all their other investments. The bar really is that high for your pitch.
The one single startup that will outperform all the others in a VC’s firm’s portfolio has solved a previously unaddressed problem or need in the world. In other words, they have unearthed and solved a “secret.” The good news is that, despite common knowledge, there are many secrets left to find and solve.
The foundation you set for your startup is disproportionally important to the success of your company. The most crucial aspects to get right are related to personnel – selecting your co-founder and board.
Offering equity as a form of compensation can be a good way to weed out those who lack the long-term commitment to and passion for the vision of your venture.
The CEO of a startup should either receive the lowest salary at the company (and set an example of frugality) or the highest salary at the company (setting a maximum compensation), though if high it should be modest. If not, he or she risks getting too comfortable.
While the fundamental innovation your business offers is crucial, sales and distribution tactics are necessary too. Sales acumen is a key distinguisher between success and failure. “Whatever the career, sales ability distinguishes superstars from also-rans.”
Humans have nothing to fear from technology’s increasing presence in the marketplace. Instead, technology will create more opportunities for humans to do what they are uniquely good at, while the machine fills in the gaps by doing what is difficult for humans.
Because it requires a distinctive vision to go from zero to one, successful founders are often eccentric individuals not afraid to pursue a seemingly eccentric vision. This explains both why founders are so successful and also why they can become scapegoats for corporate dysfunction.
You don’t have to be the founder of a brilliant company to benefit from this knowledge. As an employee, search for these qualities in the companies and leaders you work for to ensure you have the right support to develop and to keep exploring new ideas.
Zero to One is about the value of true innovation made accessible to the masses through startups. It outlines several tenets that keen-minded business people should hold dear, including why technology trumps globalization, why we should be supporting monopolies instead of “healthy competition,” why successful innovators have the worldview of a “definite optimist,” and why no one should be afraid of losing their job to a robot. Zero to One also delivers unique business insights, such as the four most important things to pay attention to about your product (hint: they’re not quantitative) and the seven questions every business must answer for itself.
Mindsets and values
Zero to One’s underlying thesis is that societal good and monetary value are created by ventures that go from “zero to one” rather than from “one to n.” Going from “one to n” implies that you only incrementally improve upon or bring to new markets an existing technology. More valuable, however, are the businesses that can identify an unmet need in the world and create a solution through new technology to address it. These companies are worthy of every dollar they earn. And, we need not fear those so-called monopolies. They deliver real value to consumers and can always be challenged by new companies that in turn improve upon them.
Technology vs. globalization
As a result of the dot-com boom and crash of the 1990s, the world of startups was shocked into believing that the big bucks of the future could be found in globalization, not new technology. This led to four unwritten rules in the startup world, rules that have now misguided entrepreneurs for years. Here they are:
Make incremental advances – Don’t try to “change the world.” Take one step at a time and don’t get too caught up in a “grand vision.”
Stay lean and flexible – Eschew the formal planning. Focus instead on “iterating” on your business model and learn as you go.
Improve on the competition – Inventing something new is risky at best. Play it safe and build off a technology that has already proved itself.
Focus on product, not sales – The right product should speak for itself, no wasteful spending on sales and marketing needed.
“These lessons have become dogma in the startup world; those who would ignore them are presumed to invite the justified doom visited upon technology in the great crash of 2000.”
However, Zero to One challenges these beliefs by re-writing the rules to more accurately reflect what it takes to truly create something capable of becoming the next major monopoly.
It is better to risk boldness than triviality.
A bad plan is better than no plan.
Competitive markets destroy profits.
Sales matter just as much as product.
The first four rules came about as an over-blown reaction to the dot-com crash. It requires boldness, planning, market dominance, and sales tactics to change the world through a startup. Those who espoused the first set of rules were setting their sights on globalization as the future. By taking baby steps, the best they could hope for was opening new, related markets. Those who play by the second set of rules, however, have the best chance of becoming a monopoly. Next, we’ll debunk why monopoly isn’t a bad word and why competition shouldn’t be revered in all forms.
Monopolies vs. competition
The concept of a business monopoly has a negative association attached to it. Notions of big, bad corporate giants with a stranglehold on the market come to mind. In actuality, monopolies are largely forces for good in society. That is, of course, unless a monopoly comes about due to artificially constrained markets. Monopolies enjoy such strong profits and market dominance because they have discovered a genuinely valuable product or service for consumers, one that no one else has yet developed. In America, the concept of healthy competition in business is all but revered. But, when one takes a step back to ponder the notion, competitive markets are more often than not areas where every product offering is just about the same, none of which is too special. In a capitalist society, monopolies are never permanent. Instead, a healthy market might be described as one in which there are serial monopolies, each of which develop innovative products so compelling that the new company ends up making the old one obsolete in some respect.
Let’s consider the world of information technology. In the 1960’s and 70’s, IBM was the leading player. Their hardware was ubiquitous. Jump forward to the 80’s and 90’s. Microsoft enters the picture with their operating system, infiltrating enterprise and private consumers alike and eroding IBM’s market share. Of late, Apple could be considered the new monopoly in this space with the advent of “mobile computing.” They didn’t just try to copy what Microsoft developed and improve it, but instead Steve Jobs and his team had an entirely new vision for how humans and computers would interact. Each of these companies could be seen as a monopoly due to having flipped the market on its head and therefore established market dominance, each in their own time. We don’t bemoan these monopolies because they brought us something no one had before. And, as we can see, we have nothing to fear as consumers as they each (excluding Apple as of present) were replaced in due course.
Interestingly, Microsoft can also be used as a case example to illustrate how competition may not be all it’s made out to be. In the 2000s, we can trace a battle between Microsoft and Google, as Google expanded into the application space and Microsoft into internet products. It’s not surprising that this rivalry took place just prior to Apple overtaking Google in the early 2010s. The problem was that both companies, engaged in competitive pursuit of the other company, slowly diminished their ability to truly innovate. Consider “Windows vs. Chrome OS,” “Bing vs. Google Search,” “Explorer vs. Chrome,” “Office vs. Docs,” and the list goes on. One might argue this competition was good, but most would agree that what came next – Apple – was even better. In all the distraction of competing against one another, Microsoft and Google had both lost out to Apple. The next time someone warns against monopolies and expounds the benefits of competition, consider these examples.
The next belief of importance is one called “definite optimism.” People who are definite optimists believe that all of us have the ability to shape the future for the better. They believe that the future will be better because of human action, including their own. Let’s contrast this with several other world views.
While every country is made up of countless personality types and outlooks on life, some generalizations can be made. Today, America could be typified as a country full of indefinite optimists. It’s no coincidence that some of the most lucrative fields are jobs that don’t make anything necessarily. “Bankers…rearrange the capital structures of already existing companies.” “Lawyers…help other people structure their affairs.” “Private equity investors and management consultants…squeeze extra efficiency from old [businesses].” Entering these fields usually ensures a comfortable salary, challenging work, upward trajectory, and external admiration and approval. What it doesn’t do is require one to put everything on the line in pursuit of bringing a product to market that they believe can change the world for the better and make them a fortune. Those with the ability to do this will most likely be definite optimists, people who believe that the future is in their hands.
Through founding two incredibly successful startups, PayPal and Palantir, and since then serving as a mentor and fixture in the startup world, Peter Thiel has learned much about what’s important in conceiving and building a company. Apart from the foundational worldviews he espouses (outlined above), there are several proven practices and lessons learned that have been codified here. First we’ll cover the four most important aspects to consider regarding your product. You may be surprised that they have nothing to do with quantitative targets or growth metrics.
The four most important aspects of a startup’s core product
Monopolies in many ways exist because they have some sort of proprietary technology. It is a necessary factor in ensuring one’s current and future profits are protected. If not, no matter how genius your product, you will soon enter the realm of competition rather than monopoly. And, your proprietary technology should be “at least 10 times better than its closest substitute in some important dimension.” A few examples can be found in Amazon and Apple. Amazon’s distinctive advantage was offering more than ten times as many books as any given bookstore. This product selection was their advantage. In the same way, Apple’s iPad could be considered to be better designed than its Microsoft and Nokia competitor tablets by a factor of ten.
Another factor that can make all the difference in bringing your business to the status of monopoly is its ability to capitalize on network effects. The network effect occurs when engagement with your product requires that others participate as well. For example, PayPal enabled people to send money electronically. But the money had to have a recipient. That person in turn might later become a sender of money via PayPal. Facebook is the quintessential example. For one person to use Facebook, others have to use it as well. People have an incentive to persuade their friends to join, as it improves their own experience. Startups that take advantage of network effects have an inherent advantage.
Economies of scale
Well-designed startups are built such that costs don’t scale on par with growth. For example, a brick and mortar retail operation requires additional real estate, inventory, and salespeople to make money. In contrast, Twitter’s exponential growth requires almost no additional investment other than the basic infrastructure and corporate team that already exists. This is what is meant by economies of scale – companies where growth means primarily greater profits, not greater cost and complexity.
The last element to consider when evaluating the strength of a startup is brand. By definition, this will be all your own and unable to be copied. The question to ask is how distinctive and integrated is into your product and company culture. Here we can contrast Apple and Yahoo. Apple’s brand is unforgettable for many reasons, including their timeless minimalist design and the user-friendly, intuitive nature of their products. Behind the beauty are the guts to back it up- the superior technology and engineering, marketing and sales, and unwavering commitment to excellence. The cautionary tale here comes from Yahoo, who tried to be “brand-forward” without first developing the substance. CEO Marissa Mayer’s charge was to turn around the struggling company, but instead of creating new, lucrative products, she began by re-doing the company logo and “acquiring hot startups like Tumblr.” A distinctive brand is not an asset if it doesn’t reflect what’s behind it.
The seven questions every startup must answer
In the early 2000s, much hope was put behind the potential of “green” technology, or “cleantech,” to revolutionize the use of and replenishment of natural resources. Slowly but surely, however, over the next decade or so, momentum began to slow and then to crawl, as countless cleantech startups folded. For some, this was the failure of cleantech. It seemed that the market was impenetrable. Big business and big government were blamed as too strong, consumers too, entrenched in their habits, were faulted. To some it seemed that perhaps the technology to overcome these challenges was too confounding.
Upon further examination, however, it seems that the cleantech companies themselves were to blame. In sum, the insights shared by Thiel in Zero to One can be compiled into the seven questions that each startup must answer before it can be confident in its potential for future revenues and growth. Taken in turn, we will outline these seven areas and highlight how the otherwise high-potential industry of green technology was put at bay as a result of poor business planning and execution.
The engineering question
“Can you create breakthrough technology instead of incremental improvements?”
Many cleantech companies failed because they were naïve in thinking that consumers would choose their technology despite it not being a substantively better alternative than what currently existed. Consumers weren’t given a compelling enough reason to change their behaviors. As mentioned earlier, in any industry, a new entrant can only hope to erode market share from incumbents by offering a product that is at least ten times better than what currently exists. This is no different in cleantech.
Solyndra was a cleantech startup that created solar panels using a new type of cell – a cylindrical solar cell. The problem, however, was that the cylindrical design was inefficient. It was actually a worse conductor of sunlight than the flat cells. Rather than being ten times better, Solyndra had created a product that was actually worse than the current state.
The timing question
“Is now the right time to start your particular business?”
Regardless of how genius a new technology may be, if the timing isn’t primed for whatever reason, the business may be doomed to fail. In the case of cleantech, capitalizing on technology to improve the environment became somewhat of a fad, and many people were persuaded that almost any foray into the industry would be successful due to the momentum behind it.
SpectraWatt was another cleantech startup involved in the silicon solar cell space. SpectraWatt’s CEO was convinced that the field was on the brink of taking off and compared the solar industry at present time to the “microprocessor industry in the late 1970s.” In the 1970s, microprocessor technology was indeed beginning to boom. Over the coming decade, the technology would become exponentially more efficient. SpectraWatt’s CEO was kidding himself if he believed that solar was in the same realm. While the first microprocessor in 1970 was followed by exponential improvements to it over the coming decade, the first silicon solar cell had been discovered by Bell Labs in the mid 1950’s, and since then had seen “slow” and “linear” efficiency improvements. There was no reason to believe that this would pick up in the 2000s. SpectraWatt’s timing was off.
The monopoly question
“Are you starting with a big share of a small market?”
The failure of cleantech companies can also be traced back to their lack of strategic entry into small, niche markets. Because the energy market is so large, many startups simply flung themselves into the market. What they failed to anticipate was that there were countless other companies doing the same due to the large dollars at stake. And, in this crowded competitive market, no one ultimately won out because no single company had a compelling factor that differentiated it from the others. For example, the CEO of a company called MiaSolé, who manufactured thin-film solar cells, “admitted to a congressional panel that his company was just one of several ‘very strong’ startups working [in that space].” But, irrationally, he also claimed that “MiaSolé would become ‘the largest producer of thin-film solar cells in the world.” He had not lucidly taken into account the other very similar competitors who were out to do just the same thing. And, in reality, MiaSolé shouldn’t have viewed themselves as able to dominate the “thin-film solar cell market.” There wasn’t such a thing, because consumers didn’t have that level of esoteric knowledge. MiaSolé was up against all solar cell manufacturers globally, and the competition was fierce.
The people question
“Do you have the right team?”
Part of Thiel’s post-mortem from failed cleantech companies reveals that you should “never invest in a tech CEO that wears a suit.” Because the space was so competitive, it required leadership that were “real technologists.” If the problem these startups were trying to solve were solely dependent on sales, marketing, or operations, a polished and season business executive might have done the trick. Instead, “these salesman-executives were good at raising capital and securing government subsidies, but they were less good at building products that customers wanted to buy.”
The distribution question
“Do you have a way to not just create but deliver your product?”
Because of the complex nature of clean technology, many startups got too caught up in the product development side of things and neglected to fully consider how their product would reach customers. Because many pioneers in the space were scientists, they were naïve when it came to these questions. “They learned the hard way that the world is not a laboratory.” An example comes from a startup that made electric cars based out of Israel, called Better Place. Their customer’s journey was so convoluted that it could have required its own guide. Potential customers had to “prove [they] lived close enough to a Better Place battery swapping station and promise to follow predictable routes,” “sign up for a fueling subscription,” and commit to regularly swapping out battery packs while driving in order for the car to function. Better Place falsely assumed that customers wouldn’t mind these hurdles because the cars’ technology was so superior, not to mention good for the environment. Better Place ultimately filed for bankruptcy, largely due to having not effectively solved the distribution question.
The durability question
“Will your market position be defensible 10 and 20 years into the future?”
Competition from cheap manufacturers in China was the refrain that countless cleantech companies sung upon closing their doors. But, was this a valid excuse, or merely a failure of foresight from those companies’ leaders? Any serious player should expect serious global competition, especially a globally lucrative market like clean technology. This is part of the durability question – have you considered the host of factors that will be at play over the long term in your desired market and adequately planned to defend against them? In addition to competition from China, aspiring players in the cleantech industry failed to adequately anticipate challenges like an increase in the use of fracking and shale gas in the U.S. and a decline in gas prices. All of these long-term factors helped persuade consumers to continue with their current behavior.
The secret question
“Have you identified a unique opportunity that others don’t see?”
Entrepreneurs in the clean technology space were all in agreement about one thing – there was a huge societal need for new, green, technologies. Major figures of American political life and pop culture also agreed that this was a problem needing to be solved. What they didn’t consider, however, was how hard of a problem it would be to solve, given that everyone agreed it need solving, but yet none had come up with a solution. That is what is mean by “secret” – “a unique opportunity that others don’t see.” The best business opportunities come about through a unique insight that is not yet widely agreed upon – taking a risk that, if successful, will change the world for many. If others don’t yet see it, it could mean you’re crazy. Or, on the other hand, it could mean that you just might be on to something great.
What’s your Zero to One strategy?
Even if your set of goals does not include founding a company or creating a new product, Zero to One can help you think about your life and aspirations in a new way. Consider if you’ve tended to follow the career path most readily presented to you, or if you’ve taken the time to reflect on what you can uniquely offer to the world and how to make that come to fruition. What are your assumptions about the future? Do you anticipate that your own actions can contribute to an improved society, or have you effectively surrendered to forces outside your control?
In your workplace, consider if the people in power are thinking strategically about the business, per Thiel’s “four most important factors of a startup” and the “seven questions to answer.” If not, start doing some diligence on competitors or in new industries to explore new opportunities. The goal is to position yourself within an industry and company that is positioned to win in the long-term, and in an environment that supports risk-taking and ongoing professional growth and development. This will ensure your life’s work will make a contribution from “zero to one,” not from “one to n.”