Never invest in a tech CEO that wears a suit.

Introduction

Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel is a very popular book in India these days. This is hardly surprising since Startups and their crazy valuations are prime time news these days. I recently picked up this book and was very impressed by Thiel’s ideas. This book is packed with lot of useful takeaways for anyone thinking of starting a new technology venture.

Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel

In Zero to One, Thiel argues that building something entirely new (zero to one) is much more difficult than growing something (one to n). He then attempts to lay out the basic principles behind building a successful technology business. The book starts off with a question –  Is there an important truth that only few people agree with you? Thiel argues that such a truth is going to be accepted in the near future and hence holds incredible value in the long term. He then lists out a number of things that we learned from the dotcom crash of technology companies during 1999-2001,

• Make incremental improvements
• Stay lean & flexible
• Improve on competition
• Focus on products, not sales

While reading the book, I nodded to all the above. But then he goes on to say that we may have got these wrong. What if,

• It is better to risk boldness than triviality
• A bad plan is better than no plan
• Competitive markets destroy profits
• Sales matter as much as the product

Again I ended up nodding to all of these points. This sudden shift of perspectives was unexpected when I was reading the book. Thiel’s ability to make us think is what makes this book so good. Thiel takes us on an intellectual ride as we get to learn a lot from his experiences as a startup founder (Paypal, Palantir) and a venture capitalist.

Thiel points out that in order to build a successful and sustainable company, the biggest challenge is to escape the competition. The key characteristics of such a monopolistic and successful company are,

• Proprietary technology (this should be at least 10 times better than nearest competitor!)
• Network effects (Start with small markets. For example, Facebook started with Harvard students)
• Economies of scale
• Branding (Build a brand backed by good product)

Thiel goes on to write,

Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.

Thiel argues that there are still secrets to be found in the world and such secrets are an important element of innovative companies. According to him we lost belief in secrets due to incrementalism, risk aversion, complacency and flatness. He presents a compelling argument for going after yet to be discovered secrets.

Zero to One contains a lot of interesting anecdotes and stories such as the sad story of French chef Bernard Loiseau who was a 3-star Michelin rated chef. Thiel uses his story as an example of the challenges of undifferentiated commodity business. He also uses the plot of Hitchhiker’s Guide to Galaxy to argue that we tend to underrate the importance of sales in business. Thiel argues that Salesmen are actors and their priority is persuasion, not sincerity. He then points out the art of persuasion in Mark Twain’s Tom Sawyer,

Tom Sawyer managed to persuade his neighborhood friends to whitewash the fence for him— a masterful move. But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser. Not much has changed since Twain wrote in 1876.

According to Thiel, every business must answer the following questions,

• The engineering question – can we create breakthrough stuff?
• The timing question – Is now the right time?
• The monopoly question – Are you starting with a big share of small market?
• The people question – Do you have the right team?
• The distribution question – How do you distribute your product?
• The durability question – Can this last for 10 to 20 years?
• The secret question – Have you identified a unique opportunity?

Thiel predicts that future successful companies will ask this question – How can computers help humans solve the hard problems? He bets on it as he is one of the founders behind Palantir Technologies.

Review Summary

Zero to One is a small and intellectually engaging book.  It is an essential read for anyone planning to build a successful and sustainable innovative technology company.

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.

My Rating: 8/10

Online Resources

• Zero to One: Notes on Startups, or How to Build the Future
• Adventures of Tom Sawyer by Mark Twain
• Story of Bernard Loiseau
• Hitchhiker’s Guide to Galaxy
• Palantir Technologies