The “Zero To one” Author says technology is miraculous because it allows us to do more with less, ratcheting up our fundamental capabilities to a higher level. Other animals are instinctively driven to build things like dams or honeycombs, but we are the only ones that can invent new things and better ways of making them.
ZERO TO ONE BY PETER THIEL
Summary of Zero To One By Peter Thiel
Author says startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think.
If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development.
Don’t try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors.
Author says creative Monopoly means new products that benefit everybody and sustainable profits for the creator. Competition means no profits for anybody, no meaningful differentiation, and a struggle for survival. So why do people believe that competition is healthy?
In the world of business, at least, Shakespeare proves the superior guide. Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace.
Author says proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate. Google’s search algorithms, for example, return results better than anyone else’s.
Proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
The clearest way to make a 10x improvement is to invent something completely new. If you build something valuable where there was nothing before, 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.
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.
A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly. Today’s strongest tech brand is Apple.
When Steve Jobs returned to Apple, he didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements. No technology company can be built on branding alone.
Author says 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.
The Last Will Be the First
Author says you’ve probably heard about “first mover advantage”: if you’re the first entrant into a market, you can capture significant market share while competitors scramble to get started. But moving first is a tactic, not a goal. What really matters is generating cash flows in the future.
Venture capitalists aim to identify, fund, and profit from promising early-stage companies. They raise money from institutions and wealthy people, pool it into a fund, and invest in technology companies that they believe will become more valuable. If they turn out to be right, they take a cut of the returns—usually 20%.
This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments.
Author says 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.
Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much.
Startups don’t need to pay high salaries because they can offer something better: part ownership of the company itself. Equity is the one form of compensation that can effectively orient people toward creating value in the future.
ABOUT THE AUTHOR
Peter Thiel is an entrepreneur and investor. He started PayPal in 1998, led it as CEO, and took it public in 2002, defining a new era of fast and secure online commerce. In 2004 he made the first outside investment in Facebook, where he serves as a director. The same year he launched Palantir Technologies, a software company that harnesses computers to empower human analysts in fields like national security and global finance.
Blake Masters was a student at Stanford Law School in 2012 when his detailed notes on Peter’s class “Computer Science 183: Startup” became an internet sensation. He went on to co-found Judicata, a legal research technology startup.