Kenny Meyer

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Book review: "Zero to One" by Peter Thiel

Published Sep 05, 2017

My main take-away from the book “Zero to One” by Peter Thiel, co-founder of PayPal and Palantir, is that in order to build a successful startup you need to innovate, which means building upon new ideas instead of copying existing ones, as only when you innovate you will be able to create companies like Tesla, AirBnb, Uber, etc.

Book cover 0 to 1

What makes this book so good is that you can probably finish this in under 4 hours, which makes it a short read, but a very captivating one.

I consider this the most important book for any entrepreneur as of right now.

Below are my notes and reviews for each chapter, but I highly recommend reading the book.

Chapter 1: The Challenge Of The Future

There are two types of ideas:

  • Vertical ideas: which is building new things that might not work.
  • Horizontal ideas: which is copying existing things that already work.

The single word for vertical ideas is: technology. Like the invention of the wheel, or the blockchain.

The single word for horizontal ideas is: globalization – which means making vertical ideas work everywhere.

Spreading old ideas to create wealth will result in devastation, not riches.

In a world of scarce resources, globalization without new technology is unsustainable.

A vertical idea is all about creating new technology, creating something from nothing and create value for others, taking it to 1.

Chapter 2: Party like it’s 1999

In this chapter Peter writes about the bubble, and the thinking that led to the bubble.

Peter invites us to always question the logic of the masses, as before the bubble it was considered normal that a business was not profitable but went out to collect money from investors.

The first step to thinking clearly is to question what we think we know about the past.

Chapter 3: All Happy Companies are Different

A successful company is a monopoly. See Google (its search engine easily takes up 80% of the global search volume).

Each successful company solves a unique problem, and all failed companies are the same: they failed to escape competition.

Chapter 4: The Ideology of Competition

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

Most of the times if you can’t outperform a rival, it’s better to buy your competitor, or gain an innovative edge. There’s no good ending in copying your competition.

If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.

Chapter 5: Last Mover Advantage

Simply stated, the value of a business today is the sum of all the money it will make in the future.

Where two are fighting, the third wins.

Technology companies follow the opposite trajectory. They often lose money for the first few years: it takes time to build valuable things, and that means delayed revenue. Most of a tech company’s value will come at least 10 to 15 years in the future.

Characteristics of a Monopoly:

  • Proprietary Technology that’s 10x better than the competition (Google’s search algorithm and ad platform)
  • Network effects (starting small to snowball into something huge… Facebook)
  • Economies of scale (there’s no inherent reason a company like Twitter or Facebook should ever stop growing)
  • Branding (Think of Apple… having a license to use the Apple branding, is like printing money)

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors

Chapter 6: You are not a Lottery Ticket

Success is not a product of random luck, it’s the product of planning.

A business with a good definite plan will always be underrated in a world where people see the future as random.

A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.

Chapter 7: Follow the Money

The power of law; and the Pareto principle (80/20).

In the portfolio of venture capital firms usually less than 10% of the startups vastly outperform the other 90% by a huge margin.

Chapter 8: Secrets

Chapter 9: Foundations

Chapter 10: The Mechanics of the Mafia

On the inside, every individual should be sharply distinguished by her work.

Build a cult, one that looks crazy to outsiders. That’s where you’ll get the best out of your employees.

The PayPal founders were originally called a mafia because everyone of the founders went ahead and built their own multi-billion companies, which was possible to the dedication and love they’ve built for the team, and the problem they were solving. Be a mafia.

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

As a tech guy (like myself) one tends to underrate the function of a sales team in a company, especially in Silicon Valley. Different audiences need different approaches. You may not need a sales team to sell your low-priced product, but if your product is target at governments/enterprise/small companies you better get ready to spend some serious cash on closing the deals with dedicated sales reps to close big cash deals.

In addition to selling to customers you need to sell your company to employees and investors, which in return attracts more people.

If you don’t have a sales team, then you are the salesman, just like people want to talk to the CEO when you want to close a $100.000 or multi-million dollar deal/contract.

Chapter 12: Man and machine

Software is eating the world. More and more jobs will be automated by computers, but the biggest challenge for today’s entrepreneurs will be to figure out how to empower people in the future.

Machines are meant to be complementary for people, not a substitution.

Globalization inevitably means substitution because that’s what we see is happening; people from India replace higher-paid workers in countries like the US, and that’s going to be more common not less.

PayPal had tried to prevent fraudulent transactions with algorithms only, but fraudsters would quickly change their patterns and the algorithms would stop working. So they went for a hybrid approach. They complemented the approach with a human, and thus gained themselves a huge competitive edge in processing payments faster than even banks.

You need to let humans do what they’re good and let machines do what they’re good at. The perfect symbiosis.

Chapter 13: Seeing green

Due to rising concerns in the environment there were many incentives to start companies that would help to improve the environment, but instead of achieving that most companies went bankrupt because they neglected one ore more of the seven questions that every business owner answer:

  1. Can you create breakthrough technology instead of incremental improvements? Is your technology 10x better than any solution out there right now?
  2. Is now the right time to start your particular business? Are the right conditions given? 
  3. Are you starting with a big share of a small market? Does your market exist, or is it so big that competitors will crush you?
  4. Do you have the right team? Never invest in a tech CEO that looks like a salesman.
  5. Can you not only create but deliver your product? Tesla first went out to build a sports car, so they would know how to build a factory that could produce a car for everyone. Scale accordingly.
  6. Will there be a market in 10 to 20 years from now for your product? Electric cars vs gasoline cars.
  7. Do you see a unique opportunity that others don’t see? Do you have the secret sauce?

Tesla is one of those companies which got all 7 right.

Chapter 14: The Founder’s Paradox

Embrace the fact that you’re different.

[caption id=”attachment_73” align=”aligncenter” width=”754”]The PayPal team in 1999 The PayPal team in 1999[/caption]

The founders can signify the difference between the failure or success of a company. See Steve Jobs.