(Here a unicorn is a technology startup which is privately owned and worth a billion dollars or more.)
To create massive value and build a huge company you have to do something which no one else has done – not copy success.
About the book
Zero to One
Notes on startups, or How to build the future
by Peter Thiel with Blake Masters
Bio: Peter Thiel was the founder of PayPal and Plantir, and first outside investor in Facebook as well as funding a bunch of other successful companies. Theil has become hugely unpopular in the past year for secretly funding the court case which shut down Gawker and for endorsing Donald Trump. While endorsing Trump is pretty abhorrent, it doesn’t change his business advice.
Blake Masters was a student in Thiel’s Stanford class where he took the notes which later became the basis of this book.
This book has long been on my reading list because of Theil’s insight on startups. While some advice would be useful to starting a business in general, it is directly aimed at technology startups.
The main point
The book title is about creating a new business model from scratch, rather than iterating on a current idea. Iteration is easier, you follow previous businesses models. He is urging readers to step out and create value by doing something new.
“It is better to risk boldness than triviality.”
Thiel makes strong arguments for building a monopoly, rather than a competitive business. We can see revolutionary businesses are able to change how the world works. Conversely, if you open the 3,000th online pet supply store, you’re going to be locked in a competitive battle. Competitive businesses can only make minuscule profits. Analogies with war are only applicable to competitive businesses. More monopolistic businesses can rise above this cutthroat battlefield and focus on making a real change in the world.
I think there’s a middle ground, between creating the next Uber and opening an online pet supply store. I want to trade off somewhere between the high risk/reward of a monopolistic startup and the lower risk/reward of starting an iterative business. I think many successful startups might not become unicorns, but still achieve success in this middle ground.
Other standout advice from the book:
Thiel believes Apple like success comes from long-term, visionary design. Not from creating a minimum viable product and iterating it based on user feedback. This is counter to almost all of the current advice. I feel like it would be true only for founders with great talent at predicting what will be successful. So rather than iterating as you get feedback he believes in a having a long-term plan. Even to the point that a bad plan is better than no plan at all. He argues that startups generally only sell when the founders have run out of vision for what to do next. My favourite story from Theil is when Yahoo offered a billion dollars for Facebook. At their board meeting Theil and the third board member wanted to discuss the offer, but Mark Zuckerberg saw it only as a formality to dismiss it. At 22 years old Zuckerberg could turn down that much money without a thought because he had a vision for what he was going to do with his product. His share of Facebook is now worth about $53 billion. (This story is mentioned in the book, but better told by Theil on James Altucher’s podcast.)
Focus your thinking on developing a unique product. For all the other areas of business – marketing, sales, accounting, finance, etc – just follow conventional practice. If you get the product right, doing the other things conventionally will work fine so don’t waste effort trying to reinvent them. That said, sales and marketing are crucial and should probably receive more effort than the product.
Choose founders who like to work together. It’s not about getting the best people, it’s about getting people who will well together. Elsewhere I’ve heard this expressed: getting the top engineers in the world (as opposed to normal engineering talent) is unlikely to make a real difference to your business – but getting a team that works well together can make all the difference.
Thiel lists seven questions which must be answered by a startup to be successful:
1. The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
He defines breakthrough as totally new, or ten times better than current solutions.
2. The Timing Question: Is now the right time to start your particular business?
3. The Monopoly Question: Are you starting with a big share of a small market?
Even if you’re not trying to create a unique startup, this is a great questions for any business.
4. The People Question: Do you have the right team?
5. The Distribution Question: Do you have a way to not just create but deliver your stuff?
6. The Durability Question: Will your market position still be defensible in 10 years?
How much profit can you make in the future?
7. The Secret Question: Have you identified a unique opportunity that nobody else sees?
Theil believes the big opportunities come from having a contrarian view. But the thing is, your contrarian view has to be correct.