Book Review – Zero to One by Peter Thiel

I wasn’t sure how to approach this book in the beginning. On one hand, Peter Thiel is an icon in Silicon Valley and has been integral in creating and fostering many world-changing companies (in addition to having a rockstar first name). On the other hand, the little I know about his politics has led me to take in the words with a higher degree of skepticism. So here are a few of the takeaways that I got.

Technology over globalization

Thiel talks about how he likes to ask any new potential hire: “What is the one important truth that very few people agree with you on?” The idea is to try to glean an ‘unpopular truth’. He states that his is that innovation is more important that globalization. Maybe i’s because I’m not part of the Stanford business community in 2012, but that doesn’t seem like that crazy of an idea to me. (Mine would be something more in the vein of objective egalitarianism and moral relativism.)

But while perhaps not crazy sounding, it does form the crux of the book’s argument and its title. Most companies work toward globalization, a ‘1 to n’ approach that replicates an existing technology with small modifications to make it more prevalent. Landmark companies work toward new technology, a ‘0 to 1’ approach creating new categories for which they will have an early edge.

Monopolies are better than perfect competition

Another central point relates to the different mentalities of companies that are in competition versus those that have a monopoly. (For the sake of this argument, these are companies for which there is not significant competition in their area, whether that is by what we traditionally think of as antitrust monopolies or companies that simply have created a sector that previously did not exist). As a general rule, companies in competition, like a restaurant, will describe themselves as the intersection of many spheres to differentiate themselves (e.g. the best British cuisine in Palo Alto). Monopolies, on the other hand, describe themselves as the union of multiple fields to disguise the fact that they are a monopoly (e.g. Google doesn’t have a search engine monopoly as they are a ‘technology company’ and just one of many).

Monopolies are better than perfect competition, because competition requires slashing profits to get an edge and keeps all parties involved at razor-thin margins. But the point that isn’t quite clear to me is this: new ‘0 to 1’ companies often need to start small and focused, creating a small niche that seems to be akin to the ‘intersection approach’ for which Thiel criticizes companies that are in competition. So what distinguishes the two?

Company alignment

Especially in the beginning, companies need to be made up of people that have an intense devotion to the mission of the company. For this reason, Thiel eschews companies that start off with ‘sexy Silicon Valley perks’ to try to draw in the best talent; talent should be at your company for what you are trying to accomplish, not the yoga room and quality of snacks in the break room. Furthermore, he breaks down potential misalignment into three categories:

  • Ownership: who legally owns a company’s equity?
  • Possession: who actually runs the company on a day-to-day basis?
  • Control: who formally governs the company’s affairs?

Maintaining alignment among these three categories is key to keeping a business on track.

Concluding thoughts

While there were a few take aways that I learned, like how businesses are valued not by their current cash flow, but by their cumulative cash flow in the future, it felt like many of these ideas weren’t as revolutionary as I had been led to believe. Additionally, the more ridiculously eccentric parts of Thiel’s personality would occasionally undercut some of his points, like proudly saying as a point of pride that more than half of the PayPal early team built bombs while they were in high school. So I think, in the end, if one decides to start a company, it is important to think about how you will do something new, rather than something someone else is doing but just in a different location. Really focus on what makes your idea unique.

Other than that, I wasn’t blown away.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s