Contrarian thinking on startups and innovation

Zero To One, by Peter Thiel (2014)

**Pages: 195**, Final verdict: Should-read

Do you think that monopolies are bad or that first movers always have the advantage in business? Then be prepared to get your ideas challenged by Peter Thiel, one of the most influential entrepreneurs in Silicon Valley, founder of PayPal, Palantir and the Founders Fund.

Zero To One: Notes On Startups or How To Build The Future was a course which Thiel taught at Stanford in 2012. One of his students, Blake Masters, published detailed notes from Thiel's lectures online. And following the success of the online notes, Masters joined Thiel in putting the notes into a book. But what exactly are Peter Thiel's ideas on how to build to future?

Contrarian thinking

The main idea in the book is the concept that when we create something new, we are building value out of nothing. An act of pure creation, which Thiel defines as going from Zero (nothing) to One (innovation).

Incremental efforts for improvement are not enough. A startup founder should aim at creating something innovative, instead of trying to improve on the competition's offer. Making incremental advances? Staying lean? Peter Thiel rather believes in risking boldness and having a plan for the future, hinting that the lean startup methodology was a wrong learning from the dot-com bubble of 2000, which removed ambition from founders.

"How much of what you know about business is shaped by mistaken reactions to past mistakes?" - Peter Thiel

This way of looking at established ideas is what Thiel calls contrarian thinking. He challenges us to ask ourselves "what is an important truth that very few people agree with me on"? Or in other words: what is the opposite of what most people believe in?

"What valuable company is nobody building?"

Under his contrarian perspective, Thiel argues that monopolies are the real valuable companies. Monopolies don't have to fight neck to neck with competitors, have large profit margins and therefore more time for futuristic endeavours (Never mind that having no competition is no incentive to being futuristic...). Competition, on the other hand, is seen as disadvantageous in business and also in areas such as education, with students competing to be perfect, and even in careers.

Microsoft, Google and Apple are mentioned as good examples of monopolies which managed to escape the traps of competition and put enough resources in building futuristic technology. And if you also want to build one of those monopolies, here is what Thiel thinks your company must have:

  • Proprietary technology (10x improvement over competitors' products)
  • Network effects (not only benefits of network for late users, but also for early users)
  • Economies of scale (software companies are perfect examples)
  • Branding (strong image)

Each chapter in Zero To One is dedicated to one of Thiel's ideas about the way startups work and succeed, and we learn a lot more over the following chapters. One other topic covered is the "last mover advantage". Again in a contrarian way, Thiel believes that first mover advantage is overrated. It should be a means to an end and not the end itself. In fact, what matters is to capture profits and generate cash flows in the future. Thus, more importantly than having first mover advantage, a startup should ensure that it will be around one decade from now.

And if you think that success is due to luck, be sure to get that notion challenged as well. Thiel makes it pretty clear that he believes success is the outcome of following a clear plan and willingness to achieve it. He rejects a culture where people don't believe it is possible to build a better future through intentional effort.

Lastly, Thiel closes the book with a reflection on whether the world will stagnate due to us reaching a plateau in innovation, or whether we are reaching a period of exponential growth in human development. Given Thiel's elaborate development of the concept of zero to one, I guess you know the answer to which scenario is his preference.

Bottom line

After you have read a couple of books on entrepreneurship, you start seeing that most of them are based on similar ideas. However, Zero To One brings fresh ideas to the table. They're not all ideas I completely agree on, but it's good to be challenged by different points of view.

The book reads quick and easily. Each paragraph goes into a different topic, without a strong train of thought between chapters - it would have been good to have a bit more structure. I also feel like the chapter about cleantech startups (Spoiler: Thiel is not a fan) should have been left out. It could have been a controversial topic in 2012, but in 2017 and for an European, I don't really relate to what that is about.

Nonetheless, I would definitely recommend reading Zero To One. Take it with a pinch of salt and you will learn a lot from one of the most successful VC investors of the early 21st century. Having recently published a don't-read review of a book promising "a blueprint for how to change the world", I am much more comfortable recommending Peter Thiel's "how to build the future".

Further learning:

Happy reading.