Monday, 29 August 2016

Review: Zero to One by Peter Thiel

Hi all!

I've been reading Emperor of All Maladies: A Biography of Cancer lately, but since it's 600 pages long and fairly slow-going, over the last two days I cheated on it and read Zero to One: Notes on Startups, or How to Build the Future

Zero to One was a hugely enjoyable read. It's fast-paced, getting straight to the point without verbosity, provides actionable information based on experience and features some cool anecdotes and sketch graphs, which I liked. It does have its flaws, usually when Thiel's personality comes through strongly - I sensed arrogance (could be confirmation bias though, considering that I'm prejudiced against him for suing Gawker out of existence) in his rants (e.g. about biotech) and pontification about founders.

I enjoyed his discussion of going from zero to one vs. going from one to n, a ka creation vs incremental progress. It was a cool way to phrase it. Also, the way he said a startup is the largest force all aligned to the same mission (paraphrasing) - large companies get bogged down by bureaucracy, but co-founders are important because it's hard for one person to get things done.

I learned that PayPal used to pay people $10 to join, and another $10 to get a friend to join. I'm kinda amazed that worked, but clearly it did. Thiel talked about PayPal's competition with the nearby (run by Elon Musk) and their decision to do a 50/50 merger - it made me wonder what would've happened to those companies if they had continued to compete instead of merging. Would both, one or neither have survived.

Thiel argues that competition is actually a hindrance to capitalism, seemingly defining capitalism as "making lots of money" and thus advocating monopolism instead. This was one of the things I didn't really agree with him on, but his advice for creating a monopoly and his comments about how monopolists and non-monopolists both pretend to be something they're not were interesting. He said unoriginal companies with fierce competition will call themselves the intersection of various smaller markets, like "We're the only Irish restaurant for Millennial ex-pats in Toronto" (Irish restaurant intersection Millennial intersection Irish ex-pats intersection Toronto). On the other hand, monopolists like Google phrase it as the union of big markets to try and paint themselves as small fish - as Thiel put it, Google could say they only have a tiny percentage of the sum of all markets of "search engine U mobile phones U wearable computers U self-driving cars". I thought that was a really interesting point. He also compared airlines' tiny profits to Google's huge ones; because Google is essentially a monopoly that Bing and Yahoo can never catch up with, Google doesn't get undercut.

I liked his advice for building a monopoly of "start small and monopolize". He talked about how PayPal identified a great small but focused market to use their service: Ebay Power Sellers, who were working with an unwieldy payments system on Ebay. "The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors"

His discussion of definite vs. indefinite optimism vs. pessimism was quite interesting. He devotes a whole chapter to it so I'll let you read that (the book is free online here as part of an MIT course), but basically indefinite optimism is expecting something good to happen while you sit on your ass, definite optimism is expecting something good to happen if you make it happen, definite pessimism is "we know what will happen and it's bad" and indefinite pessimism is "I don't know what's gonna happen but I know it'll be bad and it's out of my control".

He says aiming to be well-rounded is indefinite optimism, while aiming to be excellent at one thing is definite optimism or being "a monopoly of one". He then does a swing around Plato, Aristotle, Lucretius, Epicurus, Hegel, Marx, Rawls, Herbert Spencer and Robert Nozick, sorting their philosophies into definite or indefinite, pessimistic or optimistic. 

He goes on a little rant about biotech, saying it's all indefinite optimism, because researchers simulate or create thousands of compounds hoping they'll find one or two that work rather than designing something to work. Unfortunately, the human body is more difficult to understand than a computer. 

He talks quite a lot about the Pareto or 80/20 principle and the power rule, especially in terms of VC portfolios. One investment, he says, will likely have more value than all of your other investments combined (for him, that was Facebook). 

Also, apparently the 12 largest tech companies in America (or the world? he doesn't specify) are worth over $2 trillion, which is more than every other tech company combined. Wow. 

He discusses the continuum from conventional knowledge to secrets to mysteries and the trichotomy of the easy, the hard and the impossible. He mentions this dude who thinks the reason modern humans are unhappy is that all of the hard problems have been solved, so all that's remaining are the easy and the impossible, which are deeply unsatisfying. Thiel disagrees, though, and says to succeed a startup needs a secret - something you know how to do that no one else understands.

He talks about how no matter how good your product is, to succeed you have to actively work on distribution and stop looking down on salespeople because if you don't have salespeople, you are the salesperson.

He veers into AI and clean energy here but I think Wait But Why covers that way better so let me leave you with the seven questions every business needs to be able to answer.

1. The Engineering Question - Can you create breakthrough technology instead of incremental improvements? 
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?
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 product? 
6. The Durability Question - Will your market position be defensible 10 and 20 years into the future? 
7. The Secret Question - Have you identified a unique opportunity that others don’t see?

Definitely a thought-provoking read, enough to make up for moments of arrogance. 4 stars. 

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