Zero to One – Notes on Startups or How to Build the Future was written by Peter Thiel.
For those of you who don’t who that is he’s the person who founded PayPal in 1998. Since then it’s been sold to eBay but he’s been involved in many other billion dollar company founding’s since then through his original team which involved people like Elon Musk (Tesla) and through investments in venture capital through Founding Fund. He’s also been involved in the funding of companies like Facebook, Airbnb and LinkedIn.
His emphasis went against the grain of what we are usually taught by society. Here are a few principles from the book.
Every moment in business only happens once.
If you copy what you see larger companies doing you won’t be the next big thing. As he said in the book “The next Bill Gates will not build an operating system.” His emphasis throughout the entire book has been innovation. Copying in his eyes will only get you so far, although it’s difficult to pioneer, pioneering is the only way to make it large. Some people disagreed with this by saying that Google wasn’t the first search engine and Microsoft wasn’t the first operating system. However, if you read the book in it’s entirety I understand the statement, one large principle is to AVOID COMPETITION and if you’re trying to get 1% of a billion-dollar industry you’ve already lost. So here it’s understandable, although they weren’t the first when they started in the industries it was still relatively small and undeveloped, billion dollar companies start there.
What important truth do very little people agree with you on?
This question is the foundation of the second and third chapter. Through this question he tries to understand how different your mindset is to that of the norm, again based on the principal of no competition, if you think differently you can create something different. Being able to answer that question leads to the “contrarian truth” which allows you to think, “What valuable company is no one building?”
Not monopoly the game but using this definition – “The kind of company that is so good at what it does that no other firm can offer a close substitute.” This stuck with me during the book. I’ve watched a video that said basically the same thing in three points, your ability to make money is categorized by three things
- The need for your business
- Your ability to do what is required.
- The difficulty in replacing you.
Monopolies are the type of companies we want in the world. Competition kill profits and when companies are focused on the bottom line they cannot care about workers, products, and their impact on the world or long-term goals. It allows you to exit the struggle for survival as a company. Examples of monopolies used in the book are Google – which owns 68% of the search market.
“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 the competition.”
It’s simple – the more we compete the less we gain. Our school system and way of thinking emphasizes competition. Fun Fact – Peter Thiel was in Law school before he started PayPal competing.
- Rivalry causes us to overemphasize old opportunities and copy what worked in the past.
- Competition makes people see opportunities where non exist
- They can be just weird and distracting.
How To Monopoly
Proprietary Technology – what makes your product difficult or impossible to replicate? “Proprietary Technology must be at least 10 times better than it’s closest substitute in some important dimension to lead to a real monopolistic advantage.”
- Network Effect – If your product is valuable to it’s first set of users and a group of persons start using it then it can lead to a domino effect, eg Facebook.
- Economies of Scale – Design your business so that it can become stronger the larger it grows. It must have the potential to achieve a large scale.
- Branding – A monopoly is it’s own brand by definition. Our greatest example of excellent branding is Apple but remember that it doesn’t make a billion dollar company on it’s own without the other elements. Branding alone will not create billions.
How is this done?
Start Small & Monopolize – Remember don’t mistake small for nonexistent.
“The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.”
Scale Up – After dominating your niche, gradually expand into related and slightly broader markets. Examples of this are Amazon which started as a book store and ended up being a general retailer.
Lottery Ticket Success
“You are not a lottery ticket, if you think of it as a lottery you have already psychologically prepared yourself to lose.”
In the book he discusses the mentality that persons have behind success and agrees with the saying that Success is never accidental. We must become definite optimists and believe that we can plan for the future. Many persons take the future as a gamble of sorts and believe it’s so unpredictable there is no use in planning and this is a mindset to avoid if you’re looking to be successful. Control and plan for your future, deliberately. Prioritize design over chance.
Seven Questions Every Business Must Answer
- Technology – Can we create a breakthrough technology instead of incremental improvements?
- Timing – Is now the right time to start your business?
- Monopoly – Are you starting with a big share of a small market?
- Team – Do you have the right team?
- Distribution – Do you have a way to deliver your product?
- Durability – Will your market po88sition be defensible in 10 and 20 years into the future?
- Secrets – Have you identified some unique opportunity others don’t see?
In the book he used case examples of green energy companies that failed and those that succeeded such as Tesla going into detail as to how they correctly got each 7 aspects.
Do you think that monopoly and competition avoidance are the keys to successful business? Leave a comment or send me a message. Most courses tell us to differentiate ourselves from the competition not to be entirely unique.
** For a video version of this you can check out the video on my channel found here. I apologize in advance for the roosters.**
Until Next Time