In Zero to One, Peter Thiel offers his treatise on creating the future. He believes that a specific, largely ignored type of innovation is needed for the world to prosper, and prevailing beliefs we’ve currently adopted as truth, as well as our views about the future, are barriers to creating the world we all need. In order to create this future, new views need to be adopted, as well as the courage to think for ourselves and take action.
What important truth do very few people agree with you on?”, is a straightforward question that is hard to answer. Thiel says, “It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius." A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x."
Thiel continues, "What does this contrarian question have to do with the future? In the most minimal sense, the future is simply the set of all moments yet to come. But what makes the future distinctive and important isn’t that it hasn’t happened yet, but rather that it will be a time when the world looks different from today. In this sense, if our society remains unchanged for the next 100 years, then the future is over 100 years away. If things change radically in the next decade, then the future is nearly at hand. No one can predict the future exactly, but we know two things: it’s going to be different, and it must be rooted in today’s world. Good answers to the contrarian question are as close as we can come to looking into the future."
While the core of Thiel’s book is based upon his answer to the contrarian question (if you’re interested, is, "Most people think the future of the world will be defined by globalization (which he describes as 1 to n innovation), but the truth is that technology (0 to 1 innovation) matters more), his primary contribution is to challenge the reader to reevaluate beliefs that are based on a faulty set of underlying assumptions rooted in a limited historical perspective, because those limiting beliefs are causing us to miss out on creating the change we want see.
Thiel begins with a history lesson and an acute observation, that new technology has never been an automatic feature of history. Our ancestors lived in static, zero-sum societies where success meant seizing things from others. They created new sources of wealth only rarely, and in the long run they could never create enough to save the average person from an extremely hard life. However, in the 1760s, the world suddenly experienced relentless technological progress from the advent of the steam engine all the way up to about 1970. As a result, we have inherited a richer society than any previous generation would have been able to imagine. The problem is, only computers and communications have improved dramatically since midcentury. That doesn’t mean our parents were wrong to imagine a better future—they were only wrong to expect it as something automatic.
The first step to thinking clearly about creating a better future is to question what we think we know about the past. The dot-com bubble of the late 1990s that eventually burst in the middle of 2000 has shaped business thinking among entrepreneurs today. The lessons from the bubble were:
- Make incremental advances. Grand visions inflated the bubble, so they should not be indulged. Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward.
- Stay lean and flexible. All companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.
- Improve on the competition. Don’t try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors.
- Focus on product, not sales. If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.
Thiel argues the opposite principles are more correct:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matters just as much as product.
1. It is better to risk boldness than triviality: Why Every Great Company Has a Secret
All great companies have a secret, according to Thiel. The secret is their answer to the contrarian question,”What important truth do very few people agree with you on?” "If we already understand as much of the natural world as we ever will— if all of today’s conventional ideas are already enlightened, and if everything has already been done— then there are no good answers. Contrarian thinking doesn’t make any sense unless the world still has secrets left to give up. Thiel says four social trends have conspired to root out belief in secrets. First is incrementalism. From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade. If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit better than your peers), you’ll get an A. Second is risk aversion. People are scared of secrets because they are scared of being wrong. By definition, a secret hasn’t been vetted by the mainstream. If your goal is to never make a mistake in your life, you shouldn’t look for secrets. The prospect of being lonely but right— dedicating your life to something that no one else believes in— is already hard. The prospect of being lonely and wrong can be unbearable. Third is complacency. Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done? Fourth is “flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique."
If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is a necessary precondition.. The truth is that there are many more secrets left to find, but they will yield only to relentless searchers.
2. A bad plan is better than no plan.: You are Not a Lottery Ticket
"Long-term planning is often undervalued by our indefinite short-term world. You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it." Thiel believes that indefinite attitudes about the future explain the dysfunction in our world today.
Based on this conclusion, Thiel creates a 2x2 with its horizontal axis describing Definite or Indefinite views of the future, and its vertical axis representing Optimistic or Pessimistic views.
Americans live as Indefinite Optimists. To an indefinite optimist, the future will be better, but since he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely. Instead of working for years to build a new product, indefinite optimists rearrange already-invented ones.
Definite optimism works when you build the future you envision. Definite pessimism works by building what can be copied without expecting anything new. Indefinite pessimism works because it’s self-fulfilling: if you’re a slacker with low expectations, they’ll probably be met. But indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it?
3. Competitive markets destroy profits: On Monopoly and Competition
"Google makes so much money that it’s now worth three times more than every U.S. airline combined. The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly. “Perfect competition” is considered both the ideal and the default state in Economics 101. So-called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to be made, new firms will enter the market, increase supply, drive prices down, and thereby eliminate the profits that attracted them in the first place. If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit. The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits."
"We tend to equate capitalism with competition, but actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business. Though there is an enormous difference between perfect competition and monopoly, most businesses are much closer to one extreme than we commonly realize. We don’t see this because of a universal bias for describing market conditions in self-serving ways: both monopolists and competitors are incentivized to bend the truth." Monopolists describe their world in terms of their small position in a larger market, so as to avoid the Department of Justice inquiring into the business. Competitive firms describe their world in more monopolistic terms, because they want to attract investors.
Thiel argues creative monopolists are necessary because they give customers more choices by adding entirely new categories of abundance to the world. And, if they did not pursue monopolies, they would not have the resources to create this abundance.
Every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.
"Tolstoy opens Anna Karenina by observing: 'All happy families are alike; each unhappy family is unhappy in its own way.’ Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition."
4. Sales matters just as much as product: If you build it, will they come?
"The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself). The polar opposite business cliché warns that 'the best product doesn’t always win.’...It’s better to think of distribution as something essential to the design of the product. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product."
In conclusion, Thiel wrote the book to inspire others to create the new things that will make the future not just different, but better— to go from 0 to 1. The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future. "Today’s 'best practices' lead to dead ends; the best paths are new and untried."
Key Insights:
- What important truth do very few people agree with you on?
- Every company needs a Secret. Otherwise you eventually fall into pure competition.
- Monopoly and Competition - Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.
- Four Ways to See the World - Definite Optimism (How do I spot them?) - You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.
Personal Application:
- For me, and for others, everything hinges on the answer to the question, “What do you believe about the future?”
- What valuable company is nobody building?
- Learning about startups is worthless if you’re just reading stories about people who won the lottery.
- The world is not a laboratory: selling and delivering a product is at least as important as the product itself.
- 7 Great Questions -
- The Engineering Question- Can you create breakthrough technology instead of incremental improvements?
- The Timing Question - Is now the right time to start your particular business?
- The Monopoly Question - Are you starting with a big share of a small market?
- The People Question - Do you have the right team?
- The Distribution Question - Do you have a way to not just create but deliver your product?
- The Durability Question - Will your market position be defensible 10 and 20 years into the future?
- The Secret Question Have you identified a unique opportunity that others don’t see?
Meaningful Quotes:
"Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them."
"Malcolm Gladwell says you can’t understand Bill Gates’s success without understanding his fortunate personal context: he grew up in a good family, went to a private school equipped with a computer lab, and counted Paul Allen as a childhood friend. But perhaps you can’t understand Malcolm Gladwell without understanding his historical context as a Boomer (born in 1963). When Baby Boomers grow up and write books to explain why one or another individual is successful, they point to the power of a particular individual’s context as determined by chance. But they miss the even bigger social context for their own preferred explanations: a whole generation learned from childhood to overrate the power of chance and underrate the importance of planning. Gladwell at first appears to be making a contrarian critique of the myth of the self-made businessman, but actually his own account encapsulates the conventional view of a generation."
"Indefinite attitudes to the future explain what’s most dysfunctional in our world today. Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options. This describes Americans today. In middle school, we’re encouraged to start hoarding “extracurricular activities.” In high school, ambitious students compete even harder to appear omnicompetent. By the time a student gets to college, he’s spent a decade curating a bewilderingly diverse résumé to prepare for a completely unknowable future. Come what may, he’s ready—for nothing in particular. A definite view, by contrast, favors firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one. This is not what young people do today, because everyone around them has long since lost faith in a definite world. To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely."
