Zero To One

Peter Thiel

Amazon

• When something has been created and then further expanded upon, that's 1 to n. Globalisation for example has reduced barriers to moving goods and technologies but it has not produced innovation itself.
• Creating something that has never been created before is going from Zero to One.
• Countries should not be seen as 'developed', that suggests that we've reach our limits and cannot go further. Instead, we are all 'developing'
• Spreading old ways around the world to create wealth we cause devastation. If the population of India live like Americans, global CO2 levels would skyrocket
• Lessons from the dotcom crash:
  • Small incremental steps are the path forward
  • Stay lean and flexible, try things out and 'iterate'
  • Build your company by improving on recognisable products
  • If your product requires advertising or salespeople to sell, it's not good enough
• Economists consider 'perfectly competitive markets' as the ideal and default state. This is where producer supply meets consumer demand to achieve equilibrium
• The opposite of a perfectly competitive market is a monopoly, where a company owns its market and can set its own prices
• Monopolies will lie to avoid anti-trust by implying the compete in a much larger market
  • Consider Google - they own ~95% of the search engine market, something many would consider a monopoly. However, in the search engine market as 'online advertising', they look like a minnow in that market. And on a wider scale as a tech company offering consumer goods, they look small too
• Competitive market participants will lie too about their position in the market and how they offer something 'different'
  • Most new entrants in packed markets fail within one-two years, so the owner will tell themselves that they're different to their competition
• Monopoly capitalism
  • Peter argues that monopolies are bad in a world that is static and doesn't change, unlike the world we live in which is dynamic
  • Creative Monopolies keep innovating because they have an abundance and little fear to innovate, unlike a competitive market where innovating and failing can have devastating consequences
    • I can see where he's coming from with this but these creative monopolies are few and far between. Google is an anomaly in this instance. Look at Amazon Web Services, originally they were the only good option but as Microsoft Azure and Google Cloud have become more competitive, AWS needs to innovate.
• The value of businesses today are not based on the amount of money they make now but on what they can make in the future
  • This is critical for assessing startups. It's believed we're in a bubble currently and so valuations are inflated. Startups are often loss-making to propel growth. Assessing their business model once growth is realised is a way to predict their future valuation
• Growth is great, but so is durability. A business can grow at an exponential rate in the short-term but if it has no way to endure after that growth, it's not valuable
• Characteristics of a Monopoly:
  • Proprietary Technology
    • This is something that a company has that others can't easily replicate, so it gives the company an advantage
      • To lead to a real advantage, it must be at least 10 times better than the closest competitor
  • Network Effects
    • The product becomes more useful as more people are using it
      • People use Facebook because others are using it
    • To get a network effect, start small in a small market that can then be expanded upon
      • Facebook started for Harvard students and gradually expanded from there
  • Economies of Scale
    • A monopoly shouldn't make it difficult to scale upwards. With software, the product doesn't meet a capacity at a certain number of users (infrastructure helps here). But with a restaurant, you can only have as many customers as can fit in the restaurant
    • Scale should be built into the first design
  • Branding
    • Branding can be effective. Look at Apple, their brand is the most powerful in the world. But their brand is powerful because they got all of the other parts correct and were able to create great products that have their brand applied to them. Through consistently releasing great product, people will buy because of the brand
• Building a Monopoly:
  • Start Small and Monopolise
    • It's much easier to dominate a small market than a larger one
  • Scaling Up
    • Once a company has achieved dominance in a small market, they should then look to scale up into adjacent markets
  • Don't Disrupt
    • A company that disrupts is not new as a market must exist for it to be disrupted
    • Disruption yields competition. Competition should be avoided
  • The Last Will Be First
    • Everyone is focused on 'first-mover', by being last a company can improve upon what's been created and create the last great development in a market to then become a monopoly
      • This feels somewhat contradictory to the previous point. Surely by being last in, a company is 'disrupting'?

Quotes

• "The most contrarian thing of all is not to oppose the crowd, but to think for yourself"
• "If you lose sight of competitive reality and focus on trivial differentiating factors, your business is unlikely to survive"