Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel

Peter Thiel is the billionaire co-founder of PayPal, business partner of Elon Musk, and the first outside investor in Facebook.

This is a Stanford University business course taught by Peter Thiel in an easy-to-read book format. It is part “how-to” from an experienced serial entrepreneur, and part philosophy that, though interesting, is less valuable. I recommend this book to anyone considering starting an enterprise of any kind, business owners, managers within for profit and nonprofit organizations, Board Directors, and anyone interested in bringing an idea to life.

To create is to be human, and to create is arguably our highest and best use. The title of this book immediately grabbed my attention and has since been on my list of books to read. The idea of bringing concepts (or even people) from nonexistence to existence, from nothing to something, from zero to one, is stirring for me.

The book contains practical insights from Peter Thiel’s experience in the creation and leadership of many ventures. These insights are specific to certain types of ventures so you’ll want to read with an eye for how it does, or doesn’t, apply to your specific venture. As you can see from the photo, I took a lot of notes.

Summary Notes:

Page 5. Peter Thiel’s job interview question: “What important truth do very few people agree with you on?

  • If you don’t have an answer to this, how will you contribute anything new to the world?
  • How will you innovate if you don’t see the world differently than everyone else?
  • Courage is harder to find than genius, and it takes courage to share an unpopular opinion.
  • Page 12. To help you identify a “contrarian truth”, it might be easier to identify a “popular delusion” [what is everyone else getting wrong?]. A contrarian truth lies behind a popular delusion.

Page 10. Startups are the best way to change the world / change the future.

  • “From the Founding Fathers in politics, to the Royal Society in science to Fairchild Semiconductor’s “traitorous eight” in business, small groups of people bound together by a sense of mission have changed the world for the better.
    • My comment: Or, “The 12 Disciples” in religion.
  • It’s hard to develop new things in big organizations [too cumbersome], and it’s even harder to do it by yourself.
  • Definition of a startup: “the largest group of people you can convince of a plan to build a different future.

Page 20-21: Startup dogma that Peter thinks should be challenged (the former is dogma VS the latter is Peter’s challenge to that dogma):

  • Make incremental advances VS It is better to take a bold risk
  • Don’t plan, just iterate VS A bad plan is better than no plan
  • Improve on the competition VS Create a new market: competition only destroys profits
  • Focus on a product that sells itself VS Sales matters just as much as the product

Page 22 “Conventional wisdom” is often a pendulum swing from past mistakes (like the DOT COM Crash), and not necessarily still good advice.

Page 24-25. Create a Monopoly, Don’t Compete. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.”

  • There is vicious cycle that eats away your profits if you are in a market that has competition, and the result is that you can’t accumulate capital:
    • You sell the same homogenous product as your competitors, it is undifferentiated.
    • You no longer get to set the price, you have to sell at the price the market determines.
    • If there is profit to be made at market price, new competition enters the market, increases the supply, and prices go down.
    • Profit margins in your industry are eliminated until companies fold, supply goes down, and prices can come back up.

Page 31. “In business, money is either an important thing or it is everything.If you don’t want money to be everything, you need to have a monopoly.

  • If you are in a competitive business, you can’t accumulate enough capital to think about anything else (like the environment, community, or people), because you will need to focus on accumulating enough capital to stay alive. “Only “monopolists can afford to think about things other than making money.”

Page 36. On Education. Doing well in school only means that you can do well in school.Students who don’t learn well by sitting still at a desk are made to feel somehow inferior.

Page 37. Sometimes failing is the best thing that can happen to you. If Peter had been accepted for clerkship at the Supreme Court, he likely would not have went down the path of creating companies like PayPal.

Page 47. Beware of “Measurement Mania”. Measuring growth is easy, but you can’t measure durability.

  • The question: “will this business do well a decade from now” is a qualitative question, it can’t be answered by quantitative analysis.
  • You can’t measure the deeper problems that threaten your business
  • those who succumb to measurement mania” may overlook the deeper qualitative problems of the business.

Page 48-53. The Four Characteristics of a Valuable Company (aka a monopoly)

  1. Proprietary technology that sets it apart, differentiates it from the competition in an unmistakable way.
  2. Network Effects: the more people who use it, the better and more valuable it becomes. Eg: Facebooks becomes more valuable to you the more of your network that is using it.
  3. Economies of Scale: you can grow profits without increasing overhead costs proportionately
  4. Branding: strong, well-defined recognition amongst other businesses

Page 70-71 Money is only a means to an end (not the end itself), if you have an end in mind that isn’t money. There is a shortage of vision – what to do with money? (My comment: “Where there is no vision, the people perish.” – Proverbs 29:18)

  • Those without a vision for money just “diversify”
    • Business owners don’t know what to do with their money, so they give it to a large bank to invest.
    • Bankers don’t know what to do with it, so they diversify by spreading it across a portfolio of institutional investors.
    • Institutional investors don’t know what to do with it, so they diversify across a portfolio of stocks
  • People don’t have a vision for what to do with money, because increasingly they believe success is random and indefinite. If success is largely random, people stop making plans to succeed.
  • Diversification may be an acceptable plan to preserve wealth, but it doesn’t create wealth (or anything else).
  • Page 85. “If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you’ll miss those rare companies in the first place.

Page 78-79. Good ideas vs “there are no good ideas”.

  • Current dogma in Silicon Valley is to abandon planning. “nothing can be known in advance: we’re supposed to listen to what customers say they want, make the minimum viable product, and iterate our way to success”. (see “there are no good ideas” quote by Netflix in this edition of Digestable). Contrast that to Apple, where Steve Jobs changed the world through careful planning.

Page 81. “You are not a lottery ticket.”

  • Reject the tyranny of Chance. Creating a startup gives you “agency not just over your own life, but over a small and important part of the world.”

Page 86. Power Law. In a portfolio, one investment makes more than all the other combined. Venture capitalists should only invest in companies that have the potential to return the value of the entire fund.

Page 91. It is probably better to join a fast growing company than to start your own. Better to own a small piece of equity in a large monopoly than 100% equity of your small organization.

Page 105. Go where there are still secrets. Eg. the field of nutrition.

  • Nutrition matters to everyone
  • You can’t major in it at Harvard (most scientists go into other fields)
  • Most of the big studies were done 30-40 years ago, most are seriously flawed.
  • The Food Pyramid is more a product of lobbying than a product of science
  • We know more about the physics of faraway stars than we do about human nutrition, this is the kind of field that could yield secrets.

Page 110. There are 3 structures you should be aware of in any organization:

  1. The Owners – who legally owns the equity?
  2. Possession – who actually runs it on a day-to-day basis?
  3. Control – who formally governs the company’s affairs?

Page 112 – The Ideal Board Size: Less is more. Smaller boards of 3-5 are most effective:

  • Easier to communicate with
  • Easier to reach consensus
  • Easier to exercise oversight

Page 113 – avoid remote work or part-time employees when building a startup

  • In a startup, it is hard to maintain alignment between the people. Remote working and part-timers makes this even harder.

Page 113. CEO pay. “A company does better the less it pays the CEO“. (Maximum pay should be $150k)

  • Page 115. Equity is the form of compensation that best aligns people to create long-term value. Salary incentivizes short-term thinking.

Page 120. Hire people you enjoy working with. Time is your most valuable asset, why spend it with people you don’t envision a long-term future together outside of work?

Page 121. On Recruitment: “You’ll attract the employees you need if you can explain why you’re doing something important that no one else can get done.

  • Page 122. “promise what no others can: the opportunity to do irreplaceable work on a unique problem alongside great people.
  • Page 122. Diversity trade-offs: “startups should make their early staff as personally similar as possible.”
    • For a startup to survive, they need to work quickly and efficiently. This is “easier to do when everyone shares an understanding of the world.” (My comment: the original “PayPal Mafia” are still from diverse backgrounds.)

Page 123. Job Descriptions: “Do One Thing.”

  • Assign a very specific, well-defined responsibility to each person. Ideally, 1 task to 1 person. This makes it easy to gauge performance and if the work is succeeding.
  • In a startup, these roles can’t remain static because the business must move fast.

Page 124. Startups should be cult-like.

  • Entrepreneurs should take cultures of extreme dedication seriously.
  • Is a lukewarm attitude to one’s work a sign of mental health? Is a merely professional attitude the only sane approach?

Page 127-130. The Importance of Sales.

  • It is common to think that distribution should flow magically from the creation of a good product to the end user, but that doesn’t happen.
    • My comment: Even Jesus sent John the Baptist ahead of him to announce his coming.
  • “Superior sales and distribution by itself can create a monopoly, even with no product differentiation.”
    • My comment: this struck home for me. In my day job, our product is not unique, but we have an opportunity to create a monopoly by superior sales & distribution.
  • Page 160. No suits. “we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings.
    • The best sales is hidden. There’s nothing wrong with a CEO who can sell, but if he actually LOOKS like a salesman, he’s probably bad at sales, and worse at tech.

Page 166. Non profits vs For profits

  • Doing something different is what is truly good for society” regardless of their profit goals
  • Nonprofits suffer from the same homogenous priorities as For-profits, and they all tend to push the same priorities.

Page 167. Start by dominating a small market.

  • Until Tesla, there was no such thing as a high-end “environmentally-friendly” car. Rich celebrities who wanted to virtue signal their environmental concern proudly drove a Prius, because there was no other option.
  • Tesla only sold 3,000 of the first Roadster, but at $109,000 each, that’s not trivial.

Page 170. “No sector will ever be so important that merely participating in it will be enough to build a great company.

  • My comment: Eg: cannabis, cleantech, crypto, apps, etc.

If you enjoyed these notes, you’ll enjoy my notes on Derek Siver’s “Anything You Want: 40 Lessons for a New Kind of Entrepreneur“. For more of these, subscribe to my weekly newsletter, Digestable, by entering your email address below.

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