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From Zero to One

Book review3 min read

From Zero to One

The essence of the book in two words:

Competition is for losers! The next Bill Gates won't build an operating system, and the next Larry Page won't create a search engine. The process of creating something new, from nothing to something, from no solution to a solution, happens only once. From zero to one. And whoever does it - takes all the rewards!

Key Points

This is my summary of Peter Thiel's book 'Zero to One: Notes on Startups, or How to Build the Future.' My notes are informal and often include quotes from the book, as well as my own thoughts. This summary includes the main lessons and important excerpts from the book.

  • Successful people find opportunities to create businesses in unexpected places
    • When thinking about business, they start from first principles, not formulas.
  • A business's value is determined by its ability to generate cash flows in the future
    • Any company that's easily replaceable (like nightclubs or restaurants) will see its profits eaten away by competition over time;
    • At the moment, they might make good money, but over time, customers will move to newer and trendier alternatives;
    • If you focus on short-term growth, you're missing the most important question: will this business still exist in ten years?
  • Capitalism and competition are two opposite things
    • The essence of capitalism is profit. While competition reduces profit;
    • Google makes 100 times more profit than any airline. Airlines compete with each other, while Google stands alone;
    • If you want to create and maintain long-term value for consumers, don't create a generic business;
    • In the long run, under perfect competition, no company makes a profit;
    • The opposite of perfect competition is monopoly;
    • A competing company must sell at market price, a monopoly can set its own price.
  • A monopoly is a company that's so good that no other firm can offer a close alternative
    • Monopolies deserve their bad reputation only in a world where nothing changes. Creative monopolies give customers more choices by adding entirely new categories of abundance to the world;
    • Monopolies drive progress. The prospect of being a monopoly for several years or decades is a powerful incentive for innovation.

Properties of a monopoly:
  1. Proprietary Technology
    • To achieve a monopoly position, your technology must be at least 10 times better than competitors;
    • The simplest way to make something 10 times better than others is to invent something fundamentally new;
    • Or radically improve existing technology;
      • PayPal made buying or selling on eBay 10 times better.
      • Amazon was able to offer 10 times more books than any bookstore.
      • iPad significantly improved everything that came before it.
  2. Network Effects
    • The more users you have, the more value for each user;
    • If all your friends are on Facebook, you should join too.
  3. Economies of Scale
    • The bigger your volume, the lower your production costs;
  4. Brand
    • You've proven yourself, your product is recognized and stands out from others.

Building a Monopoly:
  • In a positive sense, a startup is the largest group of people you can convince of a plan to build a different future
  • The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors
    • Any big market is a bad choice, and a big market with competing companies is even worse.
  • Once you start dominating a niche market, expand to adjacent markets
    • Jeff Bezos dominated online book sales, then dominated most similar markets like CDs, videos, and software. Then they added more categories until they gradually dominated all online retail!
    • Facebook was initially focused only on Harvard students;
    • And eBay's sales initially consisted almost entirely of collectibles;
  • Don't deliberately destroy other businesses
    • Creativity is more important! For example, PayPal worked with Visa, Napster with Music Industry;
  • Last will be first
    • Don't try to create a new market too early; Build your business by improving a recognizable product that successful competitors already offer in the market;
    • Instead of being a first mover, become the one who makes the last great development in a particular market and reaps the benefits of a mature ecosystem. Google wasn't the first search engine, but it was able to improve the technology by 10x.
  • Think about the product, not sales
    • If your product needs advertising or sales agents to gain market share, that's not very good;
    • Focus on improving the product;
    • Use viral distribution;
    • The better the sales, the less visible they are;

Secrets
  • Most people think that all problems in the world are already solved. What's left to do is either easy or impossible
    • But you can't find secrets without looking for them. If you think something difficult is impossible, you won't even try to do it.
  • Unconventional personalities move the world
    • A useful interview question (including for yourself): 'What important truth do very few people agree with you on?'
"The little man believes in luck and favorable circumstances. The strong man believes in cause and effect." — Emerson

Instead of being a multifaceted mediocrity and considering yourself a harmoniously developed personality, a person with strong convictions sets a goal and strives for it. Instead of trying to become like everyone else, they try to become an outstanding specialist in one thing; You must tirelessly focus on what you're good at, but first, you must think carefully about whether it will be useful in the future? In a world of power law, you can't afford not to think about where your actions will fall on the curve.

7 Questions Every Business Must Answer:
  • Engineering Question:
    • Can you create breakthrough technology instead of incremental improvements?
    • Create a product or service solution that provides a 10x advantage in speed, performance, or convenience compared to the current state of affairs;
  • Timing Question:
    • Is now the right time to start this particular business?
    • Is all the necessary infrastructure and conditions in place?
  • Monopoly Question:
    • Are you starting with a large share of a small market?
  • People Question:
    • Do you have the right team?
  • Distribution Question:
    • Do you have a way to deliver your product?
    • Do you have the ability not only to create but also to sell your product? Do you think about customers?
  • Durability Question:
    • Will your market position be defensible 10-20 years from now?
    • What could prevent the Chinese from destroying my business?
  • Secret Question:
    • Have you found a unique opportunity that others don't see?

Tesla Example
  • Technology
    • Car of the Year. Other companies use their technologies;
  • Timing
    • government was funding environmental projects well;
    • Clean world is a political priority. In January 2010, Tesla received a $465 million loan from the U.S. Department of Energy;
  • Monopoly
    • a small market segment where Tesla could dominate.
    • Luxury sports car market. By selling only 3,000 cars but at $100k each, Tesla, starting small, was able to conduct necessary research and development to create a cheaper model;
  • People
    • Elon is an excellent engineer and sales specialist.
    • If you got into Tesla, you got into special forces;
  • Sales
    • own distribution network;
    • Tesla sells and services cars in its own centers, which costs more but allows tracking customer impressions and developing the Tesla brand, ensuring savings in the long term.
  • Durability
    • Tesla was able to pull away from competitors. A brand that has won customer love is an irreplaceable leadership trait of Tesla.
  • Discovery
    • interest in clean technologies is primarily driven by fashion.
    • The wealthy sought to gain an image as environmental stewards. Tesla decided to create cars where you can look cool without reservations.

Less but Better
  • Steve Jobs, when he returned to Apple, ruthlessly cut the product line to focus attention on the handful of products where the company could achieve 10x superiority over competitors;
    • Jobs understood perfectly that to change the world, you need to carefully plan each step, not listen to focus groups and copy others' successes. A business with a detailed development plan will always be undervalued in a world shrouded in darkness;

What I Took Away from This Book

I gained an understanding of how FANG companies achieved dominant market positions. And roughly how an 'ideal startup' should be structured in Silicon Valley.

After creating a testing course a couple of years ago, I decided to take a step forward - launch a school using the innovative ISA (Income Share Agreement) model. In this case, the student pays for education as a percentage of their income and only after successful employment. Looking ahead, I'll say that the business didn't work out, but that's a completely different story. The point is that the book helped me come to this. And the experience itself is worth a lot, I learned a huge number of lessons.

Overall, the book is inspiring and interesting, just like its author. About the author, I want to add that there aren't many successful entrepreneurs, even fewer serial-successful ones, and Peter Thiel not only became one himself but created an entire mafia in the business world around him - the 'PayPal Mafia.' For which he deserves great respect, as it's hard to imagine our reality without the companies these people stand behind.