Book review: “Zero to One”

Whatever you think of Peter Thiel, he’s got a lot of ‘street cred’ in the world of technology and venture capital. We all know how he founded PayPal and turned it into a billion dollar company. As a tech investor, Thiel is widely known for being an early investor in the likes of Facebook and LinkedIn. Listening to a recent interview between Thiel and Reid Hoffman on the latter’s podcast inspired me to read Thiel’s “Zero to One: Notes on Startups or How To Build the Future”. Thiel published “Zero to One” in 2014, based on a course about startups that he taught at Stanford previously.

Truth be told, some of Thiel’s views and concepts in “Zero to One” didn’t resonate with me, mostly because I struggled to convert them into action points I can apply to my own situation (read: working at a successful but early stage startup, and being based in London and not in Silicon Valley). Perhaps that’s exactly the point of Thiel’s book; to provide readers with a wide range of views, some more visionary and though provoking than others, and leaving it with readers to ‘pick and mix’ as they see fit. Consequently, these are the main learning points that I took away from reading “Zero to One”:

  1. Forget about being the first mover, be the last mover instead (1) – In strategy terms, people often talk about the benefits of being a “first mover”; a company’s ability to have a head start over its competitors as a result of being first to market in a new product category. The Hoover vacuum cleaner or Apple’s iPad are good examples of products which opened up a whole new product category and therefore did enjoy (durable) first mover advantage. Thiel, however, flips this by arguing the benefits of being a last mover.
  2. Forget about being the first mover, be the last mover instead (2) – Thiel argues that “moving first is a tactic, not a goal.” He stresses that the point of any business is to generate future cash flows, so being the first mover doesn’t do you any good if someone else comes along and unseats you. Video streaming app Meerkat is a good example of a product which was first to market, but got quickly overtaken by late(r) entrants Periscope and Facebook Live. Thiel explains “It’s much better to be the last mover – that is, to make the last great development in  a specific market and enjoy years or even decades of monopoly profits.” He advises that in order to get to such a position, companies need to dominate a small niche and scale up from there, constantly moving toward their long-term vision.
  3. The value of long term planning – I really like Thiel’s point about “lean” being a methodology, not a goal in it’s own right. As much as I see the value and importance of learning early and often, I do agree with Thiel’s opinion s about the pointlessness of iterating just for the sake of it. What’s the point of a Minimum Viable Product if you aren’t going to learn from it and iterate accordingly? What’s the value of just releasing ‘stuff’ without reflecting on whether a release got you a step closer to achieving your overall vision and commercial success? Thiel describes how successful companies like Apple and Facebook used long-term planning and business planning to get a position of durable market success.
  4. What to do with the “Power Law”? (1) – Thiel gives readers a good insight into the workings of venture capital (‘VC’) companies when he discusses the “power law”. The power law is based on the Pareto Principle. You might have come across this principle in the form of the 80/20 rule; explaining the unequal relationship between inputs and outputs, with 20% of invested input being responsible for 80% of results obtained. Thiel explains that this uneven pattern exists just as much in the VC world: “The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of of the fund combined.” To optimise for the power law, Thiel recommends focusing on one market, one distribution strategy and, as a consequence, to be cautious about diversification.
  5. What to do with the “Power Law”? (2) – For me, the most valuable bit of “Zero to One” is the part where Thiel covers how to best use the power law when making critical business and product decisions. Going over his questions, I learned the importance of being pretty single minded about your unique proposition and execution (see Fig. 1 below). Thiel’s thinking about these questions is pretty simple: “Whatever your industry, any great business plan must address each every one of them. If you don’t have good answers to these questions, you’ll run into lots of “bad luck” and your business will fail. If you nail all seven you’ll master fortune and succeed.”

Fig. 1 – “Seven questions that every business must answer” – Taken from: Peter Thiel, “Zero to One”, pp. 153-154

  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?

Main learning point: You can tell that “Zero to One” is written by someone who’s ‘been there and done that’. Thiel speaks with authority about the need to focus on a single market and busts commonplace myths about ‘lean’, first mover advantage and diversification.

Related links for further learning:

  1. http://www.telegraph.co.uk/technology/11098971/Peter-Thiel-the-billionaire-tech-entrepreneur-on-a-mission-to-cheat-death.html
  2. https://www.theguardian.com/technology/2016/jul/21/peter-thiel-republican-convention-speech
  3. https://art19.com/shows/masters-of-scale/episodes/09f191df-d089-49a3-876d-75c7730a3f94
  4. http://www.reidhoffman.org/
  5. http://zerotoonebook.com/
  6. https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage
  7. https://marketing-insider.eu/categories-of-new-products/
  8. https://medium.com/@RevelX/first-mover-disadvantage-9-reasons-being-the-first-to-market-may-harm-your-business-9ec75a85b1d2
  9. https://www.forbes.com/sites/ralphbenko/2014/10/13/peter-thiel-we-dont-live-in-a-normal-world-we-live-under-a-power-law/#35b4d7fc7a7d
  10. https://en.wikipedia.org/wiki/Pareto_principle

 

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