Book Review: Zero to One — Peter Thiel
This book is much more than “notes on startups”. Instead of the how and the what (like The Lean Startup does), Peter Thiel goes much more into the Why of startups.
Peter Thiel’s role as part of the Paypal Maffia (and investor in SpaceX, Facebook, and LinkedIn amongst others) made him credible enough to publish his own book on notes on startups, (global) economics, or on how to build the future. After reading I’m not sure if he’s brilliant, or more the rambling kind of nutty professor. I’ll let you be the judge.
”A startup is the largest group of people you can convince of a plan to build a different future”
Instead of focusing on the product or service like Eric Ries, Peter Thiel is all about the future. And not just any future, he’s only interested in a different one, with different products and different services (what he calls Vertical Progress, opposed to Horizontal Progress, which is basically copying which is already there).
He assumes that this new future can only come from startups, as corporates are not able to create vertical progress (too big, not enough risk taking etc). But most importantly: “(an organization of a) small size affords space to think” — which apparently is not there in a corporate.
”How much of what you know about business is shaped by mistaken reactions to past mistakes?”
Thiel goes back to the Dot-com crash and argues that the lessons Silicon Valley learned from the crash (incremental advances, stay lean, improve on your competition & focus on product, not sales) still guide startup thinking today, and indeed a lot of them can be found in The Lean Startup for example. He also argues that these lessons will not create radically different products and services (no vertical progress so to say), and therefore he comes up with 4 different lessons:
- be bold
- have a plan
- competitive markets destroy profits
- sales matters just as much as product
If you ask me, key here is not his four lessons, the key is that our current thinking is always shaped by our past and that the lessons we learn from that past are personal. What if we made mistakes? What if we were overreacting? What if the opposite of what we believe to be true is actually true? If you’re trying to create a new future, it makes sense to look at what happened in your past, and how that shaped the way you think (please apply this not just to your business way of thinking, this goes for all parts of your life).
”For a company to be valuable, it must grow and endure […] growth is easy to measure, however durability isn’t”
This ties into the success definition of startups. When do we call a startup successful? The industry tends to look to rising investment rounds and large IPOs. The government usually looks at the amount of created jobs. What they all have in common is the focus on short term growth. Which makes sense, as short term growth is relatively easy to measure. But growth does not equal success.
According to Thiel the big question is: will this business still be around a decade from now? The answer to this question can not be found in numbers, but only through a qualitative analysis, which takes time and is harder than just comparing numbers. Thiel comes up with 4 metrics:
- proprietary technology
- network effects
- economies of scale
- branding
Whenever the success of a startup is discussed, these are interesting metrics to consider and guide the discussion.
”You are not a lottery ticket”
Does success come from luck, or skill? This question is probably asked a lot to “successful people” like Bill Gates, Jeff Bezos, Elon Musk, Jack Dorsey, and Steve Jobs. They are usually very modest in their response and credit luck for about 90% of their fortune. But their utter existence as successful (multi billion dollar) serial entrepreneurs disproves (at least partly) the importance of luck. Is Elon Musk really “just lucky”? Every time he starts something? With PayPal, Tesla and SpaceX? What are the odds?
Back in the 1900s Ralph Waldo Emerson (great writer by the way, read his essay on Self Reliance!) already wrote:
“Shallow men believe in luck, strong men believe in cause and effect”.
Thiel ties this luck/skill question (and the different responses through history) to global world views of the future. He goes into different angles to see the future (definite and indefinite, optimistic and pessimistic) — but I will save you all the hassle of reading the chapter and will bring 10 pages back to two questions: 1) if you expect a future ruled by randomness, why try to control it? 2) In a future controlled by randomness, success must be luck, right?
According to Thiel the US is stuck in indefinite optimism since the 1980s (the future will be better, but not sure how, hence you need luck to succeed). This, amongst others, creates so many lawyers and bankers in the US by the way. If you don’t know what the future will bring, a career which keeps all options open is much more appealing than going deep into research or engineering.
Thiel pushes the world view of definite optimism (the future will be better, and here is the plan, which is the opposite of the current view in China: the future will be worse, but we have a plan, and of Europe: the future will be worse, but we don’t know how). In a positive definite world long-term planning would be valued again, and the success of a business would no longer be luck, but proper alignment of the business plans with the future (see how Musk is doing it?).
Thiel interestingly shows how our view of the importance of luck and skill is tied with the way we look at the world. He also connects planning, savings, and investments to this world view. Personally I still believe people need “some” luck to succeed, and the world can not be planned entirely, but it is very refreshing to see how our view of some basic business “ideas” are actually formed by the way we look at the world.
”If men were angels, no government would be necessary”
Only around page 100 Thiel actually starts talking about the foundations of a startup, everything before that is about markets, secrets, ideas, worldviews and much more, but not particularly about startups. Again, this shows the book is much more about the “Why”, than the “How” of startups. He starts with discussing a, very often overlooked, part of the foundations: the way the startup is governed. Ideally there are three roles:
- ownership (who legally owns the equity)
- possession (who runs the day to day business)
- control (who formally governs the company’s affairs?)
One of the reasons startups work so well is because these three roles often are in the hands of the same person(s). Compare this to a CEO role in a large corporation (or worse, a government body) and you see the weird position the latter two are in. Keep in mind though, that when you start looking for venture capital these roles are getting more and more important and think twice who you want to share the roles with.
”Monopolists know that bragging about their great monopoly invites being audited, scrutinized and attacked”
Originally the last paragraph was the end of this blog post, but after watching the Facebook, Amazon, Apple & Google hearings (back in August 2020) I have to discuss this quote as well. One thing all of their opening statements have in common is how much competition they each face, despite their apparent dominance.
The way they frame it is also very similar: they all “create” markets which are huge, and only claim a tiny fraction of that market. Amazon compares itself with the entire US retail market, Google does not address the online search market, where it has clearly a monopoly, but discusses “the way people find information”, and hereby opens up the way to Alexa, asking your friends for advice on Whatsapp or in a Facebook group. The entire statements are almost a one-on-one copy of the fourth chapter of the book. It shows how well Thiel describes the Zeitgeist (and imagine he wrote the book almost a decade ago).
What I’ve learned from Zero to One
After reading I can say the book is more “how to build the future” than “notes on startups”, so perhaps it is slightly out of place in this series. On the other hand it gives a refreshingly different view on a lot of startup dogmas.
The largest takeaway for me is how our view of people, companies and situations is formed by our history and our context. Assuming both history and context has their flaws, what would change in our worldviews if we “correct” our history and context? What secrets would come to the surface? What kind of companies would we build? What kind of future would we be able to build?
