Entrepreneur

Zero to one

Zero to one

Summary of “Zero to one” by Peter Thiel: Peter Thiel, the founder of several revolutionary companies such as PayPal, offers his vision of what it means to manage a start-up, his thoughts on what offers value in the modern world, and entrepreneurial strategies that he implements as a major entrepreneur and investor.

By Peter Thiel, 2016, 259 pages

Full title: “Zero to One – Notes on startups, or how to build the future

Chronicle and summary of “Zero to one” by Peter Thiel:

Preface: Zero to one

People who succeed know how to create value where it is least expected. They picture their business based on fundamental principles and not just formulas.

Peter Thiel, author of “Zero to one”, founded PayPal and Palantir. He is also an investor in hundreds of startups, including Facebook and SpaceX.

Chapter 1 – The challenge of the future

1.1 – Horizontal progress and vertical progress

Progress comes in two forms for Peter Thiel:

  • Horizontal or extensive progress –> globalisation

Copy what works, to go “from 1 to n” in the words of the author. Globalisation is horizontal progress. You take what works in one place and make it work everywhere. Example: China, in the next twenty years plans to become what the United States are today.

  • Vertical or intensive progress –> technology

Create something new and go “from 0 to 1”, to use the author’s term. This kind of progress is more difficult to imagine because it involves doing something that nobody has done before.

Example: If you take one typewriter and build one hundred typewriters, this is horizontal progress. If, starting with a typewriter, you design word processing software, then that is vertical progress.

Globalisation and technology are two different kinds of progress. You can base yourself on both of them, on one of the two or on neither of them. According to Peter Thiel, in a world in which resources are scarce, globalisation without technology is neither viable nor sustainable.

In general, startups create new technology. These new modestly sized companies succeed because they know how to question preconceptions and rethink a company starting from zero.

Chapter 2 – Party like it’s 1999

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2.1 – The “dot.com” mania of the 1990s

In this part, Peter Thiel looks back on the story of the 1990s. It was a happy and optimistic decade. However, he reminds us that it was not just one long party. It ended with the boom and the bursting of the Internet bubble.

The author talks about “dot.com mania”. It was intense, but short.  It took place in a new and controllable context of globalisation: “Eighteen months of madness, from September 1998 to March 2000. And, it was the Silicon Valley gold rush”.

2.2 – The four lessons learned from the Internet crash

Business owners who remained faithful to Silicon Valley retained four major lessons from the Internet crash. They continue to guide business in the sector to this day.

  • Make incremental advances

Anyone who claims to be capable of great things is suspect. Anyone who wants to change the world should be more humble. Modest stages, step by step, are the only sure way to move forward.

  • Stay lean and flexible

You should not know what your business will do: “Planning is arrogant and inflexible.” Instead you should try things out – iterate.

  • Improve on the competition

You must be careful not to create a new market prematurely. The only way to measure your market is to start with a pre-existing client base. In other words, it is better to start your business by improving identifiable products that are already offered by competitors who have succeeded.

  • Focus on product, not sales

Technology relies mainly on product development, not distribution.

2.3 – The four most relevant principles for entrepreneurs explained in “Zero to one”.

The four previously mentioned lessons have become the dogma of the startup world. However, in “Zero to one“, Peter Thiel explains that to build the companies of the next generation, we must give up the dogmas that came into effect after the crash. We should follow these other four principles, which are the complete opposite, but according to him more relevant:

  • 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 most contrarian thing of all is not to oppose the crowd, but to think for yourself.”

Chapter 3 – All happy companies are different

In this part of “Zero to one”, Peter Thiel explains that:

Creating value is not enough. You also need to capture a portion of the value that you create.

Without this, even very large businesses can turn out to be bad business.

3.1 – Two economic models

Economists refer to two simplified models:

  • “Perfect Competition”:

Markets that are called “Perfect Competition” reach a balance when the product offer responds to customer demand. No company is in a dominant position. They all have to sell at a price that is determined by the market.

  • Monopoly:

It is the opposite of perfect competition. A competitive business has to sell at market price, but a monopoly holds sway over the market, so it can set its own prices. Because it encounters no competition, it produces a certain volume of products at a certain price. The combination allows it to maximise profits.

3.2 – The lies told by the monopoly and the competition

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  • Lies told by the monopoly

Companies that have a monopoly will lie in order to protect themselves. They are well aware that if they boast about their exclusive position, they will leave themselves open to danger (audit, review, attacks). Because they want their monopoly to continue to make profits unhindered, they will do everything to conceal it. To do this, they generally exaggerate the power of their competitors, despite the fact that they are non-existent (example: Google).

  • Lies told by the competition

Those who oppose a monopoly lie in the opposite way. They claim that they form a separate category. They exaggerate their singularity by defining their market as the intersection of various other, more restricted markets.

3.3 – The monopoly: an essential condition for success, according to Peter Thiel

Creative monopolies are powerful drivers of improvement in society. They can continue to innovate and thereby feed progress because their profits (and those that they are sure to make in the future decades):

  • are a strong motivator for innovation.
  • allow them to develop long term projects and finance ambitious research programmes. Companies that face competition cannot dream of doing this.

One of the major themes of “Zero to one” is that any successful business is in a position of monopoly:

All happy businesses are different: each of them holds a monopoly by solving a unique problem. All companies that fail are identical: they have not been able to escape the competition.

Chapter 4 – The ideology of competition

4.1 – Competition that claims to be necessary is destructive

According to Peter Thiel:

  • Creative monopoly = new products that benefit everyone and lasting profits for their creator.
  • Competition = absence of profits for everyone, absence of significant differentiation and a fight for survival.

For the author entrepreneur, the more we get involved in competition, the less we win.

So why people do people continue to think that the competition is healthy? For Peter Thiel, it is because in addition to being an economic concept or an obstacle, which companies face in their market, competition is above all an ideology that is preached everywhere.

Our educational system, in the first place, feeds this obsession with competition. Teachers minimise this aspect at university, but managers constantly compare business to warfare. In reality, however, the business sector is not comparable with war, but that of competition that is “allegedly necessary, supposedly valiant, but ultimately destructive.”

4.2 – Merger trumps rivalry 

According to Marx, people struggle because they are different (e.g. proletariat/bourgeoisie). But if we take the example of Shakespeare, the opposite is the case. All the people fighting are actually pretty similar to each other.

For Peter Thiel, Shakespeare’s vision corresponds better to the world of business. Within a company, people are obsessed by their rivals, for reasons of career and climbing the ladder. Companies themselves are obsessed by their market competitors.

Peter Thiel makes an analogy between the Shakespearean model in Romeo and Juliet and the real world. In his example, the Montagues are Microsoft. The Capulets are Google. “Two large families, run by alpha male computer nerds, battling it out because they are so similar”.

Just like any good tragedy, conflict seems inevitable, and yet it can be avoided:

If you are cannot beat a rival, it might be better to opt for a merger.

Chapter 5 – Last mover advantage

5.1 – Growth and sustainability create value

Escaping the competition allows access to a monopoly, but a monopoly is only good business if it has a sustainable future. In “Zero to one“, Peter Thiel explains that:

The current value of a company is the sum of all the money that it will make in the future.

By comparing the cash flows of a company, we can easily see the difference between businesses with slow growth and startups with strong growth:

  • Slow growth firms: the bulk of their value is located in the short-term (five or six years).
  • Tech startups with strong growth: the bulk of their value will materialise at least ten or fifteen years after their creation. In fact, they follow a trajectory that is opposite to the others and often lose money in the first years (it takes time to build things of value and this time is synonymous with delayed profits).

So, for a company to generate value, it needs to grow and it needs to last.

You have to look beyond the figures and engage in a critical reflection on what distinguishes your company from others from a qualitative point of view. This is in contrast to many heads of business who focus on short-term profits that are easier to measure than sustainability.

5.2 – The four major characteristics of a monopoly, as seen in “Zero to one”

Every monopoly is unique. Having said that, monopolistic companies usually have a certain blend of characteristics in common. Analysing your business in line with these characteristics can be helpful in thinking about ways to make it sustainable.

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In “Zero to one”, Peter Thiel mentions four of them:

  • Exclusive technology

According to Peter Thiel, exclusive technology must be at least ten times better than the others. That way it makes your product difficult or impossible to replicate (e.g. Google search algorithms).

As a general rule, exclusive technology must be at least ten times as efficient as its nearest substitute in an important area for it to lead to a genuine monopolistic advantage. Anything of a lower magnitude will probably be seen as a marginal improvement. This makes it difficult to sell, especially in a market that is already saturated.

The easiest way to achieve a big increase is to invent something completely new or radically improve a solution that already exists.

Examples: PayPal made buying on eBay ten times more efficient. Apple introduced a superior quality of design with its iPad.

  • Network effects

Network effects make a product more useful as more people adopt it.

Examples: Facebook (opening an account on any other network would seem eccentric today).

  • Economies of scale

The fixed costs related to the creation of a product may be spread out over a greater volume of sales. A good startup must integrate the potential to become large-scale to its initial design.

  • Brand image

Creating a strong brand is a powerful way to claim a monopoly. Peter Thiel offers the example of Apple. Apple conveys the idea that its brand offers products that are so good that they form a category apart. The strategy is as follows:

    • The aesthetic appeal and the carefully chosen materials that make up its products (iPhone and MacBook especially),
    • The pared-down and minimalist appearance of its stores.
    • The tight control over the whole consumer experience.
    • The ever-present ad campaigns.
    • The price positioning as a manufacturer of superior quality products,
    • The projection of the aura and the charisma of Steve Jobs.

But the author warns us that no technology group can be built on brand image alone. Starting with brand image rather than substance may be dangerous.

5.3 – Building a monopoly

The brand, the scale, the network effects and the technology together in a certain combination define a monopoly. To make these elements work, choose your market carefully and deliberately opt for expansion.

  • Start small and become a monopoly

All startups are small to begin with. All monopolies dominate a large share of the market. That is why every startup has to begin with a very small market:

For a startup, the perfect market-target consists of a small group of close-knit people served by few or no competitors.

  • Envisage scaled growth

The most thriving businesses picture their progress as soon as they are invented. After you have created and dominated a specific niche market, Peter Thiel advises gradually extending to adjacent markets that are a little more extensive. The author gives the example of Amazon. The plan was to dominate all online retail, but they deliberately chose to begin with books.

  • Do not disturb

When you develop a plan to expand into adjacent markets, do not create any rupture, do not disturb anything. Avoid competition, as much as possible.

5.4 – The last shall be first

You often hear about the “pioneer advantage”. If you are the first to enter a market, you are guaranteed a non-negligible share, until such time as competitors start to get involved.

In reality, as far as Peter Thiel is concerned, being the first mover is of no benefit. Someone else can turn up and topple you. In “Zero to one” he explains that it is much better to be the last mover. This means: “Make the last great development in a specific market and enjoy years or even decades of monopoly profits”. To achieve this, the best way is to dominate a small niche and to grow on this basis, following an ambitious long-term vision.

Chapter 6 – You are not a lottery ticket (the path to success is a company with a well-defined plan)

Ralph Waldo Emerson expressed this philosophy in these terms: “Shallow men believe in luck, believe in circumstances. […]  Strong men believe in cause and effect”.

6.1 – The four world views explained in “Zero to one”

Optimists are open to the future and pessimists apprehend it. The combination of these possibilities generates four world visions:

  • Indefinite pessimism

An indefinite pessimist sees a dark future and does not know how to react to it. He or she does not know whether this inevitable decline will be fast or slow, catastrophic or progressive.

This is the case of Europe today. The continent is in a slow crisis with nobody at the helm.

  • Definite pessimism

Definite pessimism believes it knows the future. As that future will be a disaster, it requires preparedness.

This is the case of China. All the other countries on the planet are afraid that China will rule the world. China is the only country that is afraid it will not succeed.

  • Definite optimism

For a definite optimist, the future will be better than the present. All it takes is planning and hard work to make it better.

This was the case in the West from the 15th century up to the 1950-1960s: scientists, engineers, doctors and business people made the world richer and healthier, ensuring previously unimagined longevity.

  • Indefinite optimism

For the indefinite optimist, the future will be better, although he cannot say how. He stands to profit from the future, but he sees no reason to picture it in a concrete manner. That is why he does not build specific plans.

It was the case with the United States until 1982.

6.2 – Is indefinite optimism possible?

Out of these four visions of the future, three can work:

  • Definite optimism works when we build the future that we projected.
  • Definite pessimism works by creating what you can copy without expecting anything new.
  • Indefinite pessimism works because it is self-realising.

However, as far as Peter Thiel is concerned, the fourth vision, the vision of indefinite optimism, cannot operate, because there are no plans for the future.

In Silicon Valley, they build “light startups” that are capable of “adapting” and “evolving” in a constantly changing environment:

Budding entrepreneurs hear that they cannot know anything in advance. They are supposed to listen to what customers say they want, and create nothing more than the “minimum viable product”. They must open the path to the success by iteration alone.

Peter Thiel does not share this vision. According to him, a company with a well-defined long-term plan is always more likely to succeed.

That is why he believes that it is vital to reopen the path towards a defined future.

Chapter 7 – Follow the money

Money creates money. […] Never underestimate exponential growth. 

7.1 – The law of power of venture capital

Venture capital investors identify, finance and profit from promising companies at the start of their development.

These investors:

  • Raise money with wealthy institutions and individuals.
  • Group it together into funds used to invest in technology companies, which they believe, will increase in value.
  • If they are right, they reap a share of the profits (in general 20%).

But it is not easy to spot which companies will succeed. That is why investors build a diversified portfolio, hoping that the winners will offset the losers.

Peter Thiel explains that the law of power governs the benefits of risk (discovered by Einstein): it turns out that a small handful of companies perform far better than all the others.

The biggest secret about venture capital is that the best investment in a successful fund is equal to or greater than the rest of all the combined funds.

This involves investing only in companies that have the potential to bring in the value of all the rest of the funds:

The venture capitalist must find the handful of companies that will make it from 0 to 1, and then support them with all the resources possible.

Peter Thiel ends this chapter of “Zero to one” by stressing the importance of this law:

If you create […] your own company, you should never forget the law of power if you want to manage it well. The most important things are singular: one market will be probably be worth more than all the others […]. And one distribution strategy generally dominates all others. […] Time and decision-making also obey the law of power, and some moments count more than others.

Chapter 8: The secrets 

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8.1 – Four trends that explain why we no longer look for secrets

Apart from the fact that physical borders have been pushed back, four social trends explain why we no longer believe in secrets:

  • Gradualism

Since early childhood, we learn that the right way to do things is to

put one foot in front of the other and to stay inside the box.

If you are a brilliant student and you end up learning things that are not on the exam programme, you won’t get any credit for this. But if you do exactly what teachers ask you to do, you will get an A.

  • Aversion to risk

People are afraid of secrets because they are afraid of being wrong:

The prospect of being alone but being right – of dedicating your existence to something that nobody believes in – is really tough. The prospect of being alone and being wrong can be unbearable.

  • Complacency

We think that it is pointless to go looking for new secrets because you can comfortably reap the benefits of everything that has already been done.

  • Our “flattening” planet

As globalisation progresses, people see a homogeneous and highly competitive market: the world is ‘flat’. Therefore, they think:

If there was anything new left to discover, an anonymous member of this global pool of talent composed of individuals who are all more intelligent and creative than I am would already have discovered it. This little voice of doubt deters people from even beginning to search for secrets.

8.2 – There are still countless secrets to build great companies

For Peter Thiel, there are still countless secrets to discover, in particular in science, in medicine, in engineering and in all areas of technology. But to uncover them, we need ambitious researchers:

We could cure cancer, senile dementia and all diseases related to age and to metabolism-induced decline. And we would be able to find ways to produce energy, which frees us from the world conflicts related to fossil fuels. We would invent faster ways to travel from one place to another on the surface of the planet. And we would even discover how to escape earth’s gravity to push back the boundaries of the known world. But if we are not curious and if we refuse to look at what is on offer to us, we will never learn any of these secrets.

For Peter Thiel, the same applies to the world of business. Great businesses can build on the basis of secrets related to how the world works. This is what certain startups in Silicon Valley did, such as Airbnb, Lyft and Uber. They made use of untapped potential. These secrets are often very simple:

Ideas that in hindsight appear to be elementary may serve as the basis for big profitable businesses. Therefore, there must still be any number of great businesses waiting to be created.

8.3 – How to discover these secrets

There are two kinds of secrets:

  • The secrets of nature: they exist all around us. To discover them, we must study some unknown aspects of the physical world.
  • The secrets of individuals: these are the truths that people do not know about themselves or hide because they don’t want other people to know them.

Therefore, when it comes to thinking about what kind of company to create, you need to ask two separate questions:

  • What secrets is nature not revealing to you?
  • What secrets are other people not revealing to you?

The best thing is to go looking for secrets where nobody else is looking for them. Most people only think in terms of what they have learned.

On the question of whether you should keep a secret reality to yourself or not, Peter Thiel has mixed feelings. It all depends on the nature of the secret. However, he leans towards thinking that it is preferable not to reveal everything you know to everyone. Only share with those you consider necessary.

Chapter 9 – Foundations

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If a startup lies on bad foundations, this defect will be impossible to correct.

For Peter Thiel, the early days of a company are a unique moment. The first job of the founder is therefore to make good first decisions. Once taken, they are very difficult to change.

9.1 – Choosing your associate

When you start a business, the first decision you have to take, and the most crucial one, is to decide on the person with whom you want to launch. Choosing a co-founder is like getting married, and conflict between founders is just as painful as a divorce.

Peter Thiel explains that when he is thinking about investing in a startup, it is important for him to know if the founders know each other well and work well together. Before launching a business together, they must have a shared history.

9.2 – Distribution of ownership, possession and control over the company

The founders are not the only people who need to get along. Within the company, everyone has to be able to work together. To anticipate any possible sources of dissension within the company, it is useful to distinguish three levels: ownership, possession, control.

In a typical startup, these levels are composed as follows:

  • Ownership 
    • This is the person who legally owns shares in the company.
    • It is divided between the founders, the employees and the investors.
  • Possession 
    • This is the person who actually runs the company on a daily basis.
    • The managers and the employees who make the business work possess the company.
  • Control
    • This is the person who formally steers the business of the company.
    • A board of directors, generally made up of founders and investors, controls the company.

Most conflicts inside startups arise between ownership and control. In other words, between the founder and the investors that sit on the board of directors.

The smaller the board, the easier it is for the directors to communicate, reach consensus and exercise effective supervision. That is why it is crucial to choose the members of the Board wisely – every person counts. In an ideal world, the board will have three members. In any case, it should never exceed five members (unless it is a publicly traded company).

9.3 – Hire people full-time

Peter Thiel recommends that any person involved in the operation of your business should be committed to it full-time. In his opinion, part-time employees or consultants do not work.

9.4 – Focus on the increase in value, not your salary

To make sure that the protagonists engage fully, you must pay them adequately. In contrast, when investing in startups, Peter Thiel clearly observed that the companies that worked best were the ones that paid their CEO less money. According to him, the CEO of a startup supported by venture capital in the early stages of its existence should never make more than $150,000 annually. A CEO with a smaller salary will focus on increasing the value of the company as a whole.

9.5 – Offer a share in the company

Startups have something better to offer their employees than high wages. They can offer them a share in the actual company.

A portfolio of securities is a form of compensation that can encourage members to create value in the future. However, it is important to remain vigilant because bad distribution can be a source of conflict. In addition, many employees are not attracted by these offers of shares. This can be on one hand because it is not cash and on the other hand because the shares will be worthless if the business fails.

A share in the company cannot create perfect motivation, but it is the best way for a founder to keep everyone inside the company roughly on the same line.

Chapter 10 – The mechanics of mafia, from “Zero to one”

“Company culture” does not exist outside of the company itself: […] each company is its own culture.

10.1 – Enjoy each other’s company outside of the professional relationship

For Peter Thiel, working with people who genuinely appreciate each other is essential. They should be enthusiastic at the idea of working together in the long-term. It is one condition for a successful career.

10.2 – Recruit conspirators

Recruitment is an essential skill for any company. Never outsource this.

According to Peter Thiel, a talented person does not “need” to work for you. He or she can choose. To attract this kind of person, you have to be able to explain:

  • Why the job is exciting, not just what explains its importance in a general way, but why what you do is fundamental. Tell the person why nobody else would be capable of doing the same thing.
  • Why your company is a perfect match for this person, on a personal level (without going into the benefits and other incentives).

Basically, the potential future employee must understand that this is the opportunity to “do irreplaceable work on a unique problem, alongside remarkable people”.

10.3 – Be different in the same way

In your company, everyone should be different in the same way. Form a tribe of individuals cut from the same cloth, fiercely dedicated to the mission of the company.

In order to survive, a startup must work with speed and efficiency. This is easier when all the employees share the same conception of the world.

The author talks about building the PayPal team. From the start, all the members were obsessed by the creation of a digital currency that would be controlled by individuals rather than by governments. For the company to work, it was necessary for each new recruit to share the same level of obsession, and the same eccentricity. Peter Thiel has several stories about this, including the following:

Out of the six people who launched Paypal, four built bombs in high school. […] Under normal circumstances, building bombs was not a favourite pastime among kids from these countries.

10.4 – Stand out through your work: one thing and one thing only

Seen from the outside, all employees of a startup must look alike. But seen from the inside, each individual must be clearly distinguishable by his or her work.

Peter Thiel tells how, as head of PayPal, the best decision that he took was to make each employee of the company responsible for one thing, and one thing only. He explains that he chose this solution initially to simplify staff management. Later on, he noticed another, deeper result.

Defining roles in this way reduced the risk of conflict. Most internal struggles occur when several work colleagues compete to carry out the same responsibilities.

Chapter 11 – If you build it, will they come?

Building these machines is not enough to attract consumers. You have to act as a catalyst to create the encounter between the product and the consumer. This is more difficult than it looks.

11.1 – The sale: the importance and skills

Most people, and Silicon Valley more than most, underestimate the importance of advertising, marketing and sales. Advertising is hugely important because it works.

Advertising does not exist for you to buy a product on-the-spot; it exists to instil subtle impressions that will push sales at a later date.

Sales cover a wide range of skills. Much like good actors, salespeople work very well when they hide their technique.

There are […] some great masters of sales. If you do not know any of these great masters, it is not because you have never met them, but because their art is hiding in full view.

This explains why almost all professions related to distribution, whether sales, marketing or advertising, have a title that has nothing to do with any of these activities.

11.2 – How to sell a product

If you have invented something new without inventing an effective means to sell it, you are off to a bad start, no matter how good your product.

Two units of measurement set the limits for effective distribution: customer lifetime value (CLV) and customer acquisition cost (CAC).

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Peter Thiel explains that the total net profit realised in the course of our relationship with a customer (CLV) must exceed the amount that we spend on acquiring a new customer (CAC). In general, the higher the price of our product, the more logical it is to spend to get a sale.

In this part of “Zero to one”, the author separates the different levels and methods of sales.

  • Complex sales (at least seven digits)

    • Every detail of every contract of sale requires the personal attention of the manager.
    • Developing good relationships can take months. You can only get one sale per year or every two years. These sales require follow-up throughout the installation of the product and to ensure the maintenance long after the deal has been concluded.
  • Personal sales (between 10,000 and 100,000 dollars)

    • A CEO does not generally handle sales.
    • Establish a process that lets a sales team of modest size distribute the product to a broad public.
  • The dead zone of distribution

Between custom sales (where sellers are required) and traditional advertising (where no salesperson is required), there is a dead zone. The product requires a personal sales effort, but at this price level, companies do not have sufficient resources to send a “flesh and blood” sales rep to talk to each potential customer.

  • Marketing and advertising: for consumer products at a relatively low price

In order to reach the end consumers, a major consumer goods manufacturer has to make television ads, insert reduction coupons into newspapers, design eye-catching product packaging, etc.

  • Viral marketing

This involves encouraging users to invite their friends to use a feature in turn. It is fast and not very costly.

Examples: Facebook and PayPal (PayPal paid people directly to sign up for PayPal and paid them then more money if they recommended PayPal to friends).

  • The power law of distribution 

Whatever the sector of business, distribution obeys a power law that is specific to it. Therefore:

If you are able to make just one distribution channel work, you will already see great business results. If you try to create several without locking one of them down, you are finished.

  • Selling to non-customers

Peter Thiel believes that it is also important to succeed in selling your company to your employees, your investors and the media with a good public relations strategy.

Chapter 12 – Man and machine

Today, more than 1.5 billion individuals enjoy instant access to world knowledge thanks to handheld computers. Every current smartphone has computing power that is thousands of times greater than that of the computers that guided the American astronauts to the moon. […] “Software devours the world”, announced the venture capitalist Marc Andreessen.

According to Peter Thiel, it is wrong to think that even the most sophisticated computers will one day replace human workers. In “Zero to one”, he explains that computers are complementary to humans, not substitutes for them.

12.1- Substitution versus complementarity 

  • On a worldwide scale 

In “Zero to one”, Peter Thiel explains how men and machines are fundamentally effective at different levels.

    • Individuals have intentionality. We establish plans and take decisions in complicated situations. In contrast, we are less efficient when it comes to analysing enormous quantities of data.
    • Computers do exactly the opposite. They excel when it comes to efficient data processing, but have difficulty in formulating elementary judgements that are within the reach of any human.

For an entrepreneur, humans and computers are not only more or less powerful than each other – they are radically different:

Computers are tools, not rivals. […] Understanding technology is the unique way we can escape competition in a globalised planet. Computers have become more and more powerful, but they will not substitute humans: they will complement us.

  • On a company scale

Complementarity between computers and humans can lead to the building of large companies.

Here, the entrepreneur cites the example of the man-machine system (called Igor) set up by PayPal to combat credit card fraud. As he could not resolve this problem “humanly”, Thiel implemented an automated solution. However, quite quickly, fraudsters succeeded in deceiving the algorithms for automatic detection. On the other hand, it was much more difficult to deceive the human analysts. The company decided to adopt a hybrid method. The computer would report suspicious transactions through an interface and human operators would make the final decision on their legitimacy.

Based on this efficiency, the hybrid man-machine method used by PayPal was then developed and used in other sectors, including to identify terrorist networks.

The author emphasises that in some sectors, such as law, medicine and education, superior technology cannot replace professionals. It does however, enable them to improve their productivity.

12.2 – Increasingly intelligent computers: friends or enemies?

Anthropomorphic robotic intelligence such that of Siri or Watson led some people to ask a question. Once computers will be able to answer all of our questions, why should they remain submissive to human beings?

This name of this replacement theory is “strong artificial intelligence”. It consists of thinking that computers will overshadow humans in all the important areas.

In reality, according to Peter Thiel, we do not know if strong artificial intelligence will save humanity or be the end of humanity. But even if strong artificial intelligence is more of a real possibility than an impenetrable mystery, it is not about to happen. He concludes this chapter of “Zero to one” as follows:

The Luddites argue that we should stop building computers that could substitute humans one day; a few unbridled futurists say the opposite. Between these two extreme positions, there is plenty of room for individuals of sound mind to build a much better world, over the next few decades.

Chapter 13 – Seeing green

13.1 – The seven questions that companies have to answer in order to succeed

At the beginning of the twenty-first century, everyone thought that the big thing would be clean technology. But the companies in that sector went bust.

For Peter Thiel, mistakes in government organisations contributed to the failure. However, he believes that the main reason for the failure of the sector relates to the fact that the players neglected some essential questions before they launched their businesses.

In “Zero to one”, the author explains why it is essential to answer each one of these seven questions before launching any large business project (regardless of the business sector).

  • Engineering: are we capable of creating rupture technology instead of simply adding progressive improvements?
  • Timing: is this the right moment to launch a business like ours?
  • Monopoly: are we launching with a large market share?
  • Individuals: are we a good team?
  • Distribution: do we have the means not only to create but also to deliver our product?
  • Sustainability: will we be able to defend our market position in ten or twenty years?
  • The secret: did we identify a unique opportunity that other have not seen?

If you can correctly target each of these seven points, you will be in control of your destiny and you will succeed. In fact, five or six good answers are enough.

13.2 – Why did clean companies fail? 

  • The question of engineering

In order to succeed, a technology company must propose proprietary technology that is far superior (ideally 10 times better) than that of its closest competitor. However, green technology companies rarely achieved performance that was twice as good, let alone ten times better. Sometimes, they even offered products that were inferior to the ones they were supposed to replace.

  • The question of timing

Entrepreneurs in the clean technology sector tried to convince themselves that their time had come. But in 2008, the solar industry still needed to understand and improve a number of things.

  • The question of monopoly

Leaders of clean companies thought that there was enough to go around to accommodate all the new market entrants. Each of them imagined, wrongly, that their company had an advantage.

  • The question of individuals

Companies in the clean-tech sector were led by teams that clearly lacked technicality. Their leaders-salespeople knew how to raise capital and ensure government aid. However, they turned out to be much less competent when it came to creating products that consumers wanted to buy.

  • The question of distribution

Clean-tech companies knew how to effectively woo governments and investors. But they often forgot their customers. The world is not a laboratory: selling and delivering a product is at least as important as the product itself.

  • The question of sustainability

Any entrepreneur should be able to project themselves as the last market entrant. This involves asking a question: what will the world look like in ten or twenty years and how does my business fit in?

Very few companies in the clean-tech sector had the right answer to this question.

  • The question of the secret

Companies in the tech sector maintained the illusion of an irresistible social need for alternative energy solutions. They allowed clean-tech companies to believe that they offered “irresistible” business opportunities.

13.3 – The social entrepreneurship myth

The reason the clean-tech bubble burst is also because social entrepreneurship is, according to the author, a myth.

Companies have great power, but are chained to the incentive of profit. Non-profit organisations target public interest, but they are weak players from an economic point of view. Social entrepreneurs aim to combine the best of both worlds and to “do well by doing good”. In general, they end up doing neither.

13.4 – The example of Tesla, as told in “Zero to one”

Tesla is one of the few clean-tech companies launched in the last decade that is still thriving today.

As far as Peter Thiel is concerned, it is because Tesla was able to provide the correct answer to the seven questions above.

  • Technology: Tesla’s technology is so efficient that many other car manufacturers rely on it now.
  • Timing: there was only one time when it was possible and Tesla timed it perfectly.
  • Monopoly: in 2013, the company sold more than 20,000 sedans. The company is in a good position to extend its business to much larger markets in the future.
  • Team: the CEO of Tesla is an engineer and an exceptional salesman. His team is also remarkable on both levels.
  • Distribution: Tesla took the distribution aspect so seriously that the company decided to put in place its own network of distributors.
  • Sustainability: Tesla had a head start and started faster than anyone. This winning combination means that the society will increase its lead in the years to come.
  • Secrets: Tesla built a unique brand around a secret – clean-tech constitutes a social phenomenon even more than an environmental imperative.

13.4 – Energy 2.0

In reality, the underlying concept of the green technology sector is correct. The world is going to need new sources of energy.

However, an entrepreneur can only take advantage of a “macro” scale vision if the plans start at the “micro” scale. For Peter Thiel, regardless of the energy needs of the planet, only a company that can provide a superior solution to a specific energy problem will be able to earn money.

Chapter 14 – The founder’s paradox

14.1 – Extraordinary character

In this chapter of “Zero to one”, Peter Thiel talks about why it is more convincing (and at the same time more dangerous) for a company to have an outstanding individual at its helm than an interchangeable manager. The entrepreneur describes “a very odd thing about founders”:

CEOs of a startup can be both cash poor and on-paper millionaires. They can waver between morose nervousness and irresistible charisma. Almost all successful entrepreneurs are simultaneously insiders and outsiders. When they succeed, they attract both stigma and renown.

The author cites Richard Branson, Sean Parker, Bill Gates and Steve Jobs as examples.

14.2 – Entrepreneurs need founders

We take turns venerating and despising the founders of major tech companies, the same way we do with celebrities. For Peter Thiel, we should be more tolerant toward these characters even when we find them odd or extreme. We need these extraordinary individuals. They can their companies beyond simple gradual progression.

While the legal battles brought against Microsoft put an end to the domination of Bill Gates, the return of Steve Jobs as the head of Apple demonstrated the irreplaceable value of the founder of a company. In some respects, Steve Jobs and Bill Gates were two opposites. Jobs was an artist. He preferred closed systems and spent most of his time thinking about superb products. Gates was a businessman. He insisted that his products remain open and wanted to rule the world. But they were both simultaneously insiders and outsiders. They both took the businesses they created to a degree of accomplishment that nobody else could have equalled.

Book critique of “Zero to one” by Peter Thiel:

The author’s conclusion: recreate the future

At the end of “Zero to one”, Peter Thiel wonders about the future. He outlines different scenarios of our future world going from “stagnation to singularity”. His final analysis is this:

No matter how many trend curves you can imagine, there are two most likely scenarios facing us today – something and nothing. It depends on us. We cannot take a better future for granted. This means that we have to start work creating it today. The task that awaits us today is to find the singular means to create previously unseen things. These things will not only change the future, but make it a better future – succeed in moving from 0 to 1.

He ends like this:

The first essential step is to think for yourself. Only by looking at the world with fresh eyes, seeing it as virgin and as mysterious as the Ancients who saw it first, will we be able to both recreate the world and preserve it for the future.

The two key messages from the book “Zero to one”

In my view, Peter Thiel puts forwards two key messages in this book.

  • The monopoly as an ideal:

The monopoly is built via exclusive and efficient technology, network effects, economies of scale and a unique brand image. It is the indisputable condition for the success of a startup. For Peter Thiel, in a situation of monopoly, we can think about innovation and the long term. Competition is destructive because it requires a constant need to stand out and to look for profits.

  • Getting from 0 to 1 means creating added value:

It is about standing out from what others are doing by developing a niche market that will become indispensable to its users (look for the secrets where nobody else is looking). You can picture this as follows: “Most people think ____ but the truth is this opposite ________ .” The company must therefore start small, but grow and last.

A small and large-scale approach to entrepreneurship

Zero to one” is a book that offers an overview of the current and future economic challenges. It also makes interesting reading for entrepreneurs in how they perceive and manage their business.

Strong Points:

  • The bright ideas and the vision of a great entrepreneur and investor about the current and future economic challenges.
  • A somewhat non-conformist approach that invites readers to think differently.
  • Advice about entrepreneurial management that you can apply to aim for higher goals.

Weak point:

  • The content is geared more towards startups that want to dominate the market than to more modest entrepreneurs.

My rating : Zero to one company thiel Zero to one company thiel Zero to one company thielZero to one company thielZero to one company thielZero to one company thielZero to one company thielZero to one company thielZero to one company thiel

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