ZERO to ONE

ZERO to ONE is a provocative business book with a completely unique take on our world. As Nassim Nicholas Taleb author of The Black Swan says “When a risk taker writes a book, read it. In the case of Peter Thiel, read it twice. This is a classic.”

I like the way the book starts with "Every moment in business happens only once. The next Bill Gates is not building an operating system. And the next Mark Zuckerberg wont build a social network. If you are copying these guys you aren’t learning from them."

Doing something we already know takes the world from 1 to n but doing something new takes us from Zero to One. Here are some of the highlights from the book which I liked

The Challenge of the Future : Peter says whenever he interviews someone he asks “ What important truth do very few people agree with you on?” Peter’s own answer is that most people think the future of the world will be globalization, but the truth is technology matters more.

Party Like its 1999: There are four big lessons form the dot com bubble that entrepreneurs learnt and that still guide business today are

1. Make Incremental advances: Small incremental steps are the only way forward
2. Stay lean and flexible: You should try things out, iterate and treat entrepreneurship as agnostic experimentation
3. Improve on the competition: Don’t try to create a new market prematurely.
4. Focus on product not sales: Technology is primarily about product development not distribution

However Peter argues that the opposite principles are correct

1. It is better to risk boldness than triviality
2. A bad plan is better than no plan
3. Competitive markets destroy profits
4. Sales matters just as much as product

Last Mover Advantage: Escaping competition will give you a monopoly but even a monopoly is only a great business if it can endure in the future. For example Twitter was valued at 24 billion dollars more than 12 times the Time’s market capitalization – even though Twitter lost money compared to Times. The answer is cash flow. A great business is defined by its ability to generate cash flows in the future.

Peter identifies the following characteristics of a monopoly

1. Proprietary technology: This is most important because it makes your product difficult to replace. For example Googles search alogirthms return better results than anyone else.
2. Network Effects: This makes a product more useful as more people use it. Network effects businesses must start with especially small markets. Facebook started just with Harvard students.
3. Economies of Scale: A monopoly business gets stronger as it gets bigger. Software startups can enjoy dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.
4. Branding: A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.

Peter argues that what really matters is generating cash flows in the future so being the first mover doesn’t do you any good if someone else comes along and unseats you. It is much better to be the last mover to make the last great development in a specific market and enjoy years of monopoly profits.