Zero To One26th June 2017
This post is about Peter Thiel's book Zero to One. I'm generally fascinated by how very smart people view the world, particularly if those views are unpopular. Peter Thiel, a well-known entrepreneur/investor and famously contrarian thinker, definitely fits into this category. In this book, Peter lays out his perspective on building the future. The central thesis is the idea that progress doesn't happen on its own - someone has to make it happen. This is where the "zero to one" phrase from the title comes in. It refers to the fact that most things are simply copying or iterating on something that's already been done (1 to n). It takes genius and courage to invent transformative new technology that creates abundance and prosperity (0 to 1).
In Peter's view this technology is most likely to come from startups (as he put it, a startup is the largest group of people you can convince of a plan to build a different future). With that perspective in mind, much of the book focuses on lessons about how to "build the future" through a startup. But I think the main points of the book are valuable whether you have any interest in startups or not. They offer new ways of thinking about technology, markets, and competition. It's bold, contrarian, and thought-provoking. Here are some of the key insights.
Competition & Monopoly
One of the most notable threads that gets touched on often is the nature of competition. Most economists view perfectly competitive markets as capitalism working as intended. Competition causes each participant to raise their game, lower prices, deliver greater value etc. in the pursuit of customers and profit. But Peter argues that competition and capitalism are actually opposites. Competitive markets erode profits until no one is making any money. When margins are very thin and profit is hard to come by, companies can't afford to do anything except fight for market share. They're trapped by short-term thinking.
The opposite state is when a company has a monopoly - complete dominance of a market protected by a huge moat. Most of us would say that monopolies are bad. Monopolies allow companies to charge high prices, slack off on customer service, cut R&D investment, and lots of other bad things. But Thiel argues this is only true in a world where nothing changes. In dynamic, technology-driven markets, creative monopolies can actually be good for society because they have both the incentive and the available cash flow to invest enormous resources into inventing new technologies. Rather than rent-seeking, this class of monopoly creates new categories of abundance.
Thiel's perspective on competition and monopoly is a core component of his advice for building a company. If competition is problematic then the best thing to do is start by owning a small market as a monopoly and expand to adjacent markets from there. This sounds easy but is very hard in practice, which is why few companies achieve it. Companies that do gain a monopoly are able to build some durable, lasting advantage in their market. This usually comes in the form of proprietary technology, network effects, economies of scale, and branding. Some combination of these advantages can generate significant long-term value.
My own perspective is that having a monopoly isn't binary. Nor are markets entirely static or dynamic. These things exist on a continuous spectrum. All companies are probably somewhere between perfect monopoly and perfect competition in any given market, no matter how that market is defined. And all monopolies probably cause some harm to consumers, even if they also lead to some new inventions. It's useful to speak about these things with such rigidity in the abstract to make a point, but the real world is messy. That doesn't mean he's wrong, just that there's probably more to the story in most cases.
Easy, Hard, or Impossible
Another theme from the book that I found really interesting was the trichotomy between easy, hard, and impossible. Thiel argues that most things are either easy or impossible to accomplish. Easy things have already been done, and impossible things can never be done no matter how hard we try. However, there are some things that are hard but possible. In some cases these hard things were previously impossible but have become possible thanks to new technology. Hard things that are possible to achieve are "secrets". They're truths about the world that most people do not know. This is because common knowledge about what is possible changes much slower than what is possible in reality. Secrets can come in many forms. They can be about the natural world or they can be about people. These hard things, these "secrets", are what great companies are built on. Companies doing hard things are a shared conspiracy to change the world, founded on a secret known only to those on the inside.
This is a pretty radical view of what it means to be part of a company, however I think it makes sense. Most of us aren't part of a conspiracy to change the world because we're not working for companies doing hard things. We're all probably aware of companies that seem to fit this description though. Tesla would be a good example. Tesla is trying to bring about the end of the fossil fuels era by making electric cars mainstream - hard, but possible. Tesla's employees generally appear to be fanatical about the company's mission. Many on the outside probably don't think Tesla will succeed in its goal, but I bet most of its employees do. Their "secret", though widely known, still may not be widely believed.
Most companies that try to do something hard end up failing. They can fail for a variety of reasons, many of which Peter talks about in the book (culture, team, incentives alignment, distribution, and so on). The distribution of companies that try to do hard things and succeed vs. those that fail probably looks like a power law. This explains why most secrets never see the light of day (and why the secret about hard things remains relatively unknown).
Sales & Persuasion
The last theme in the book that I found interesting has to do with salesmanship and persuasion. As an engineer I'm naturally distrustful of anything that involves "selling". It just feels messy, ambiguous, and somehow dishonest. I think Peter actually changed my mind though. He addressed this very point in the book about engineers underrating sales. It makes sense to talk about sales from the standpoint of building a company. Every successful product or service needs a distribution channel. What intrigued me was thinking about sales in a much more general capacity. Sales is just the art of persuasion. In some sense, we're all selling all the time because persuading people is a normal part of human life. When I really think about it, almost every conversation I have at work or at home involves some amount of persuasion, no matter how mundane. In hindsight, it seems obvious that this is a skill that one can improve on just like anything else.
One other point that Thiel makes is that great salesman are hidden from sight because it's not obvious that they're selling something. He points out the Elon Musk, widely thought of as the consummate engineer, is also a grandmaster salesman. If you think about it this actually makes a lot of sense. Elon is able to get some of the smartest, most driven people in the world to work at his companies. He got a massive loan from the government to build electric cars at a time when the world economy was collapsing. Most of the developed world thinks he's the real-life version of Iron Man. These are the marks of someone who knows how to persuade.
This was one of the most information-dense books I've ever read. Most books use a lot of words to say very little. "Zero to One" completely inverts this norm. Nassim Taleb recommended that everyone read this book three times. I've gone through it twice (it's a quick read) and I'm still picking up new things from it. I think he may be on to something.