Book Review: Zero to One by Peter Thiel

Zero to One is based on a startup course Peter Thiel gave at the Stanford University in 2012. Peter is a co-founder of PayPal and Palantir and an investor in startups, which includes Facebook and SpaceX.

With a commerce undergraduate degree, I have taken a few courses in economics and entrepreneurship. I’ll say a lot of the info relayed isn’t different from what can be learned in these type of courses. Rather than sharing some of the overlapping concepts, I’ll share the key insights that I took away from this book.

Image source: http://yourstory.com/2014/12/peter-thiel-startups-tips/

Competition is not good, differentiate yourself

Zero to One. It’s the idea of creating something new of value rather than improving on an existing product or service.

A market can be categorized by the characteristics of its competition. On the one extreme, there is perfect competition. This is when there are numerous buyers and sellers and all firms sell an identical product or service in a market where there is a low barrier to entry. In this case, no firm can influence the market price of a product or service. And in the long run, all companies only earn enough profit to stay in the business. If companies are enjoying a profit, other companies will enter the market and drive down the profit.

On the other extreme, there is monopoly. Monopoly happens when only one firm sells a product or service to numerous buyers. This is often due to competitive advantages, such as proprietary technologies, network effects, economies of scale, and/or branding, that the company has that prevents other companies from entering the market.

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.

We grow up in an environment that focuses on competition.  Whether that’s in school through the forms of report cards or sports activities or in the workforce competing for more responsibilities or promotions, we are constantly competing with each other.

When it comes to businesses, Peter Thiel stresses the importance of escaping competition through differentiation. Be mindful that any differentiation that your business has must be relevant and significantly better in both perceived and actual value than the next best option in your market to lead a real monopolistic advantage.

Every startup is small at the start. Every monopoly dominates a large share of the market. Therefore, every startup should start with a very small market.

Aim to dominate a niche market first and once you do, gradually move into other related or broader markets. Starting in a niche market allow you to test out your value proposition as well as not overleveraging your resources.

Invest your time wisely

When you choose a career, focus on something you’re good at doing. But before that make sure that the skills you are developing will be valuable in the future.

Even though startups is the theme of this book, Peter Thiel also cautioned about starting businesses. There are numerous ways to have a successful career and joining a great company while it’s growing is often times a better alternative.

If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well, even in purely financial terms.

This is my favorite takeaway from this book. Time is our most valuable asset, so make sure you are spending it with people who you can develop a long-term relationship with. It won’t just make you happier and more productive at work, but also enrich your lives off of work. The more bonds you create the stronger your network is.

Importance of setting a good foundation when starting a business

The founding moment of your business only happens once, so use it to build up a great foundation. First of all, make sure that that you have a history with your partners. Having great synergy is very important. Bad partnerships alone can often kill a business no matter how valuable the product or service is.

Hire people who enjoy working together and share the same vision the company has. If people aren’t aligned, there will eventually be discontent and productivity will suffer as a result.

Summary

The core theme of this book is on creating businesses that go from Zero to One. This book is very well received, however, it’s not a book I’ll recommend to my friends from commerce. It’s more valuable if you have less exposure to economics and startups concepts. If you have a different take on this book, please share it with me as well. 🙂

I’m currently reading The Outsiders by William N. Thorndike, Jr.