On Zero To One (part 1)
Warn: Post in progress
I've been reading Peter Thiel's Zero to One this summer, and want to note my thoughts on it. First and foremost, I believe the main value of the book is not from its specific startup tips or advice. If you want that, go read Paul Graham's essays or Sam Altman's blog. Better yet, follow them on Twitter (@paulg and @sama).
Instead, the ideas in the book are valuable because they describe a way of thinking. For example, the book describes Thiel's mindset when approaching a variety of topics, from business to economics to politics to the value of college, etc. But most importantly, the book describes Thiel's mindset on the advancement of humanity (or what he calls "technology", or "the future"). To me, it seems that the book is roughly 80% about mindset and 20% about concrete advice [0]. In other words, it's about how one thinks [0.5].
First off, a couple questions.
Should you read this book?
Yes.
A friend told me he hadn't read the book yet because he thought Peter Thiel was too radical and somewhat of a hypocrite (Why is he encouraging kids to drop out of college when he has so many Stanford degrees? How can he speak out against competition when he benefitted so much from the capitalist system? [1]).
Even if you are in this camp, you should read the book. Why? Zero To One is akin to a book on mathematics in the sense that Thiel starts with one key assumption/axiom, and then describes many theorems, results, and corollaries that one should logically believe if they hold the starting assumption to be true. And what's his driving assumption? It's that going from Zero to One, or making new technology where none existed before, is the most important thing for people to do. I think this is a premise that many would in fact be sympathetic towards, so in reading Zero to One, the reader gets to see a simple premise driven to its logical extreme on the many topics that Thiel discusses. The conclusions Thiel draws then lead one to reflect on their mindset towards those topics, even if Thiel's conclusions seem extreme at the outset. If you are interested in Thiel's premise and its implications, reading this book will do a lot of detailed thinking for you and springboard you into a place where you can decide first what you believe about his view-points and second what you actually think about his starting premise.
Why this post?
This post aims to describe
- the key surprising results from the book
- how these results affect one's mindset
Surprising results, are (unsurprisingly) ideas that don't play nicely with conventional knowledge. To that end, I'll try to avoid lots of discussion on the pretty widely accepted ideas in the book in this post, (such as "have a 10x advantage in either technology, network effects, economies of scale, or branding") even though they might be very useful rules of thumb. In a later post I might reflect on some of Thiel's interesting yet more "conventional" advice.
Before I begin I should state a caveat: I'm not necessarily interested in the absolute truth. Rather, I'm interested in what type of mindset will make me the most effective. When these two things don't coincide, I actually seek the latter. This is generally my philosophy in chess, and in many instances, in life.
Eyebrow raisers
Below are Thiel's claims that I found most surprising. These are from chapters 1-8. Hopefully I get around to writing a part two which will cover the remainder of the book.
Courage over genius
First page of the first chapter:
Brilliant thinking is rare, but courage is in even shorter supply than genius.
What's he talking about? The argument is that it is often more difficult to have a strong vision/belief about the future than it is to be brilliant in an academic sense. [2] [3] Indeed, intellectuals feel comfort in the pursuit of brilliance because academics is rational and (to some extent) provable. They feel accomplishment because many of their findings are technically difficult, and as a side benefit, possibly useful [4].
However, there are societal pressures to not have a bold vision. People commonly say that "ideas are worthless, execution is everything" (especially on Quora, good gracious people). People justify not having a concrete plan for a product because they're going to iterate on it, and it's now viewed as OK [5]. And, worshippers of genius will always say that someone smarter "out there" is working on it, so why waste the effort and get humiliated?
However, Thiel argues the most reliable way to make a change to the future is to have a bold vision of the future and a plan to accomplish it. In other words, to be courageous. Elon Musk's ventures (SpaceX, Tesla) are a great example of what I think Thiel would call courage.
There is no doubt that you need to have a good enough understanding of the world to be in a position in which your courageous vision has any meaning, but this leads one to question if we learn in pursuit of genius for genius's sake or if we learn to eventually make a difference. And a follow up question is if our academic community encourages us to be courageous and take such risks, or if it strongly warns against it, making us abandon our larger, ambitious plans as we learn more and more.
Think for yourself, and dare to dream. The future won't create itself, and so the future depends on it.
Avoid competition
Maybe it's a little disingenuous for me to include this as an argument that "surprises" me, because it's a claim that I already strongly sympathize with.
However, Thiel has a novel and clear justification for why competition is terrible, and sheds light on many areas of competition that I haven't considered before.
The argument is that on the spectrum from pure competition to perfect monopoly, something with monopolistic character is a far better structure for innovation. How is this possible?
In a world of perfect competition, nobody can make a profit — nobody wins. Why? Because every penny earned must be reinvested into the business. Otherwise, your competitors will reinvest in their businesses and you will lose. In perfect competition, the only thing you can worry about is the competition, and as a result, you become enslaved to staying alive. Money becomes the only thing that matters. You work as hard as you possibly can and turn exactly 0 profit. How depressing. It's truly a good thing perfect competition doesn't exist. It would drive me insane.
In contrast, a monopoly has no competition to deal with. Thus, they may freely spend their resources to investigate new things. In a monopoly, money is not everything. A monopoly with intentions of building the future just views money as a tool to help them do so.
Thiel also notes that very few businesses fall in the middle of the spectrum between competition and monopoly. Instead, businesses are either shackled to competition or have a monopoly. Then why doesn't it seem that way? Because people enslaved to fierce competition don't want to say that they have an undifferentiated product, while people in monopoly don't want to get investigated. Thus, each party tries to fool you into thinking they are neither in competition nor in monopoly, while the reality is much more binary.
Comparing these two extremes, it is pretty clear that you would rather be in a business on the more monopolistic side of the spectrum to feed innovation. That means avoiding competitive spaces.
Unfortunately, our cultural bias for competition is deeply rooted. Competition is at the heart of academics, sports, politics, and even biology (evolution). Many adore competition for competition's sake. Everybody wants to win. However, competition often has us focusing on making tiny, incremental improvements to old ideas, not create new ones. Competition often makes one focus on non-impactful, non-essential things.
Thiel gives the example of Google and Microsoft. Both were giants in their time. However, for some odd reason, Microsoft wanted to compete with Google's search engine by rolling out Bing. It spent lots of time, resources, and marketing on this move, which was completely unrelated to their core product. It also offered no substantial improvements on Google search. Later, Google spent lots of money, time and effort trying to compete with Microsoft Office with Google Docs. In the meanwhile, Apple, who was competing with neither of them and focusing on its own vision of the future, surpassed both companies in monopolistic style.
Why did Google and Microsoft start a war with each other, diverting their energy and resources to make minor differentiators to existing products instead of actually making bold innovations (and thus allowing Apple to surpass both of them)? Thiel doesn't answer this but I think it's due to two core human emotions: fear and jealousy. Each was afraid that they were missing out on some other opportunity and diverted focus from their core product to get what somebody else had. That's competition. And it hurt them.
Of course, just as one shouldn't love competition for competition's sake, one shouldn't hate competition just to feel contrarian. Focusing back on the original claim that going from zero to one is the most important thing to do, we should focus on whatever actually adds new value to the world. It is possible that some competitions, such as the space race, actually did add value to humanity. And those are battles worth fighting. However, have clarity of mind, and understand that many, many battles are not worth fighting (and that non-competitive settings often allow you to better focus on what's actually valuable). If you win a useless battle just because you're in love with winning, I argue that you haven't won at all [6].
What does this all mean for our mindset? Focus on what's valuable and escape the competition!
Don't Disrupt
Although this is strictly a corollary of the "escape competition" idea, I figure the terminology of "disrupting an industry" is prevalent enough that it deserves its own short section.
Thinking of oneself as a "disruptor" in an industry makes one understand their business in an inherently competitive way. Instead, the act of creation is far more important than trying to annoy the incumbents.
Instead of going for "disruption" which is a zero-sum game, create something new and generate new value. That allows you to escape the competition as much as possible.
To drive the point home, I believe you should redefine yourself as something new, and not through the lens of some existing company. Yes, that means goodbye to "we're the X for Y". (Uber for Tinder. what??). And yes, that means I do get slightly annoyed when a friend calls my idea an "X for Y". Some stories are more important than others.
Startups aren't all about speed
It turns out that a simple cash flow analysis shows that a majority of the value generated by a growing startup will be not be reaped until 10-15 years after it's founded. Speed is important to help you survive at the beginning, but to create a large amount of lasting value, you need to figure out how to be durable.
What does that mean for mindset? If you have high hopes for a company you're starting, also expect to sink at least 10-15 years into it. Despite everybody only planning a couple of months ahead and thinking about the short term, it would be wise to have an idea of where you want to be in 5 years and then work backwards to create milestones to see how you'll reach that place.
The power law
Pareto's principle states that 80% of the effects come from 20% of the causes [7]. Many results follow a power law. It is well known among VCs that the success of companies follows a power law. Perhaps more subtly (and a little more uncomfortable) is the idea that the skills and contributions of people also probably follow a power law.
What does the power law mean for our mindset? It means that one should have conviction.
If the power law is actually true, it means that it is unwise for VCs to diversify for the sake of diversification in the name of "hedging" and "risk mitigation". Instead, they should try to identify companies they believe will be the most successful, and invest heavily in them to get maximal returns. According to Thiel, the best VCs invest in as few companies as possible.
What does the power law mean for individuals? Avoid diversifying and hedging among many options. Don't dabble in everything. Rather, squint hard and try to determine what will really take off, and then run with it. Why? Because you can't really diversify your life to hedge against uncertainty. It doesn't make sense to run a dozen companies and see which flies, or have a dozen equally viable alternate career paths on reserve to see which flies.
This proposition is surprising because it's the opposite of what we learn in school. We're instructed to be well rounded, and each subject is devoted the same amount of time/attention. Thiel argues that it absolutely matters what you do, because the success of the career you choose likely also follows a power law. First determine if what you're doing will be valuable in the future, and then focus relentlessly on that. This will yield the best results.
Block out the noise, don't envy other people, and have focus.
You can control the future
TODO: This was probably the hardest chapter to think about...
On design over "speed" or "iteration" https://www.youtube.com/watch?v=f84n5oFoZBc
Notes
[0] The chessic way of thinking about it is that Thiel has written a book on strategy rather than tactics. However, in chess books strategy is often illustrated and backed by tactics, and Thiel does provide concrete case studies and specific advice (such as CEOs of early stage venture backed startups should have a salary of at most $150,000) to back his points. So there is a case to be made saying that Thiel really offers his advice on both mindset and concrete actions. It's just that I find the mindset aspect most unique to this book.
[0.5] What the book is about straight from the horse's mouth:
This book is about the questions you must ask and answer to succeed in the business of doing new things: what follows is not a manual or a record of knowledge but an exercise in thinking. (11)
[1] In fact, Peter Thiel argues competition and capitalism are complete opposites.
[2] I've witnessed the power of courage and a plan first hand. Friend A had an idea for a startup that friends B and C were initially skeptical of. However, A showed an insistance, conviction, and belief that his idea would work, and was able to convince B and C (both vastly more experienced developers than A) to work with him on his idea. I later asked B why he decided to work with A. He replied that "he had nothing better to work on, and he wanted to give A's idea a try. After all, A had strong belief the idea would work and a plausible plan to get it done. It was better to work on something than nothing." In fact, I am confident B could have come up with the same idea independently. But B would have rejected it due to uncertainty, doubt, and lack of conviction. It took A's conviction and plan to get B to commit. It was courage, not brilliance, that got the venture off the ground.
[3] Some might replace Thiel's "courage" with "passion", or "conviction". In Stanford's MS&E178 (The Spirit of Entrepreneurship) our teacher Ravi Belani claimed that the decision to start a startup was not a rational affair, but rather an act driven by something irrational: passion to solve a problem. I would probably agree, especially if I were optimizing for the metric of my personal net worth. If I took Thiel's philosophy, however, and was trying to optimize for the best way to build the future, perhaps being courageous and deciding to start a startup is perfectly rational. In fact, it may well be the most pragmatic choice you have as an individual if you want to build the future.
[4] Perhaps this is harsh, but I do get the sense that "rigor" or "novelty" are far more important than actual utility in a lot of science.
[5] And depending on the product or the market, maybe it is ok, but please think about it before assuming it's fine to allow iteration to solve all your problems.
[6] In high school we had this game called spoons. The gist of the game is that each person gets a spoon and a target to "kill". To "kill" someone, you tap your spoon on your target's shoulder when they are not holding their spoon to their nose. The kid who won this game was the one who held a dirty plastic spoon to his/her nose for weeks upon weeks. They would suffer to win this game "for the glory of it all", but my question is, in doing so, did they really win?
[7] Pareto showed that 80% of the land in Italy was owned by about 20% of the people. He developed the principle by observing that 20% of his pea pods produced 80% of the peas. In business, it is often true that 20% of the clients generate 80% of the sales.