Review of Peter Thiel’s book “From Zero to One”

Peter Thiel’s new book, From Zero to One , is a clear and deep account of capitalism and success in the 21st century economy. It talks about how to create companies that are capable of producing fundamentally new things. The author writes about everything that he learned from his own experience, being a co-founder of PayPal and Palantir, and later - investing in hundreds of startups, including Facebook and SpaceX. Til is certainly a man of outstanding qualities. They made him famous and inspired the authors of the series Silicon Valley to create the image of Peter Gregory.

Indeed, the projects in which he somehow participates seem to be invented by a science-fiction writer: a company developing biotechnology of eternal youth, an organization that is going to create human communities in the ocean, a fund that pays adolescents to drop out of college and go into business, a company engaged in the analysis of large volumes of data, which, according to rumors, contributed to the capture of Osama bin Laden.

The book is written in clear language, filled with capacious aphorisms and constantly makes you think. Thiel’s most provocative statement: “competition is for losers”; monopoly is what an entrepreneur needs. Till presents his idea in a very ingenious way - controversial enough to provoke a discussion, but also sensibly enough so that with a gradual reflection it would be easy to find a reasonable grain in it. Til does not say that capitalism is bad. He says: precisely because capitalism is so good for the consumer, it has become a hell for companies. Businesses with really high competition, such as similar airlines or restaurants, see how their competitors and fickle customers reduce profits. Before growing, a startup starts small. An entrepreneur should strive to dominate a small market. In other words,

Till writes: “The ideal target market for a startup is a small group of well-defined people that are served by a small number of competitors or no one at all.” Many successful services, such as Facebook and PayPal, initially started in small communities of experienced users. These first users tested the product, found bugs and helped tell the world about the product after the expansion of the company. Harvard Alumni Online Magazine may not sound like a billion dollar idea, but Facebook costs $ 200 billion today because Zuckerberg monopolized colleges before conquering the world.

The book immediately begins with a very inspiring text about the need to build something new, and not fight endless competition:

Each business event occurs only once. New Bill Gates will not create an operating system. New Larry Page and Ser-Gay Bryn will not come up with a search engine. And the new Mark Zuckerberg will not build a social network. If you copy these guys, then you have not learned anything from them. Of course, copying a model is much easier than creating something new. By doing what we already know how to do, we move the world from one to two and further to an arbitrarily large number N, increasing the amount of what already exists. But whenever we create something of our own, we take a step from zero to one. Each creative act is unique, as is the moment of creation, and each time the result is something new and amazing.

In the third chapter, the author gives an example of competition in air travel:

American airlines annually serve millions of passengers, earning hundreds of billions of dollars. But in 2012, when the average one-way ticket price was $ 178, airlines earned just 37 cents from each passenger’s flight. Compare with the revenue of Google - a company that earns less in absolute terms, but is a cut above the competition when it comes to net profit. In 2012, Google earned $ 50 billion (while US airlines made $ 160 billion), but 21% of this money was net income: that is, Google’s net profit was almost 100 times higher than that of air carriers.

If you want to create and save income, do not build a business based on the production of goods that are no different from competitors' products.

Til arrived in the Valley in 1985. He graduated from Stanford twice, which, however, did not completely relieve him of the conviction that college was a waste of time. In 1998, with a group of friends, Thiel founded PayPal (then called “Confinity”). After 2 years, at the peak of the dot-com bubble, he teamed up with Elon Musk - probably the most famous scholar in the Valley, who had just founded a similar company - X.com - just a couple of blocks away.

In the second chapter, about which we, by the way, wrote in detail even before the release of the book, Thiel says: “Entrepreneurs who have remained faithful to Silicon Valley have learned four great lessons from the history of the collapse of the dot-com bubble. These lessons remain today the basis for modern business thinking. ”

1. Be careful in forecasts.
Great expectations helped inflate the dotcom bubble, so don't encourage them. Anyone who promises to do great things should be suspicious. Anyone who threatens to change the world must first learn to behave more modestly. Stepping forward in small steps is the only way to move forward without putting yourself in danger.

2. Act flexibly, adapt to reality.
Every company should learn to act flexibly - that is, not according to plan. Do not try to decide what your business should be like: planning gives you excessive self-confidence and lack of adaptability. Try different methods, use a variety of options, treat entrepreneurship as a series of experiments for a skeptic.

3. Develop in the course of competition.
Do not try to create a new market ahead of time. The only way to make sure that your business is worth something is to start working with already mature clients and build your business, improving the recognizable product that
successful competitors are already offering on the market.

4. Think of a product, not sales.
If your product needs advertising or sales agents to gain a place in the market, this is not very healthy: technology requires you to focus on developing and improving the product, rather than on distributing it. In the era of the dotcom bubble, advertising was a waste of money. The only method to achieve sustainable growth is viral spread.

In the startup world, these lessons have become dogma. Anyone who decides to ignore them is doomed to incur the wrath of fate, which overtook the world of high technology at the time of the collapse of 2000. Perhaps it would be more correct to act in exactly the opposite way.

1. It’s better to take a chance and be too brave than to be commonplace.
2. A bad plan is better than no plan.
3. Highly competitive markets are killing hope for profitability.
4. Sales are just as important as the product.

Not every day you hear the techie glorify sales. Til explains well why techies don't like sales people, and why techies are wrong. “Techies are skeptical of advertising, marketing, and sales because it all seems superficial. They know how hard their own work is, so when they look at salespeople who cheerfully talk on the phone with customers and go to two-hour dinners, they suspect that there is no real work here. In general, people overestimate the relative complexity of science and technology, so the challenges and difficulties in these areas are obvious. Techies don’t understand that making sales look simple is not easy ... If you invented something new, but didn’t invent a way to sell it, you have a bad business and it doesn’t matter how good your product is. ”

The chapters on sales and distribution hide more simple wisdom than other business books on the same topics.

It is a pity that Til did not pay due attention to the culture of failure, but endlessly builds a theory of success. In the chapter on luck - “ You are not a lottery ticket ” - the author defends the idea that skill is more important than luck on the market. But in the next chapter - “ Go where the money is"- he admits that most of the venture capitalist bets fail. He writes: "The main secret of venture financing is that the best investment in a successful fund is equal to or exceeds the rest of the fund." This is, in fact, a version of the Pareto law for venture capital investments: a small number of investments will bring huge, disproportionately high gains, and it is almost impossible to guess which investments.

Therefore, the complete denial of the impact on startups of chance and luck is at least debatable.

The author wrote a treatise that will inspire entrepreneurs, but he inspires the whole genre. The book “From Zero to One” came to the market with low competition and with its example proved the principle stated in it. Among competing business books, she built a mini-monopoly.

PS This review is a continuation of a series of articles on the “PayPal Mafia” ( 1 , 2 )