ZERO TO ONE! Peter Thiel

"TO KEEP WINNING, I HAVE TO KEEP IMPROVING"

-INTELLIGENT INVESTOR

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To imagine what progress the future will bring, we must be able to view the present differently.

Try to imagine the world in the year 2100. What do you see? Difficult to imagine?

For most people, the future is a maddening topic to think about.

But what do we mean when we talk about the future?

The constant progress made as we move forward with time. The differences created from the present is what defines the future.

More specifically, it can be divided into "HORIZONTAL" and "VERTICAL" progress:

Horizontal progress comes from expanding on existing ideas and innovations. Example: Globalization, it helps spread existing ideas to more people.

Vertical progress, however, comes from creating something new that did not exist before.

Example: New technology.

Horizontal progress is going from “One to N” whereas vertical progress is going from “Zero to One”.

Practical examples

Horizontal progress - mass-producing phones and distributing them to developing countries.

Vertical progress - building a smartphone from a regular one.

As you can imagine, vertical progress is hard to predict because you have to imagine something that doesn’t exist yet. 

You can only predict the future if you can see the present differently.

After all, the future is by definition different from the present, so to imagine it you cannot just focus on today. If you want to imagine what the future holds, you must be able to view the present critically.

The author believes this is a crucial ability, and during job interviews, he would ask candidates,

“What important truth do very few people agree with you?”

Why did he ask this question?

Because only a person who can think out of the box can see and change the future.

Monopolies are good for businesses and society: they mean you are doing something better than everyone else.

When people hear the word “MONOPOLY,” they tend to think of large, evil companies unfairly squeezing out the competition. This is incorrect.

Conventional wisdom holds that competition is the ideal economic stimulus, encouraging companies to improve on each other’s products. However, it is monopolies that drive innovation.

How can that be?

First of all, if you have a monopoly, it does not necessarily mean the competition is being treated unfairly. 
Rather, you are just doing something so much better than them that they cannot survive by being ordinary.

Eg: Google

Similarly, if you create something new that no other company can copy, it is not necessarily a bad thing.

Google has a monopoly over the search-engine industry, having faced virtually no competition whatsoever in the twenty-first century. This might seem unfair to other companies who would like to compete.

This monopoly of google has certainly been good for everyone who likes using Google’s powerful search engine.

Moreover, monopolies are good for society because they drive progress: they encourage other businesses to come up with better solutions and overthrow the current dominant company.

For example, if a company wants to compete in the search-engine market today, it needs to invent a better search engine than Google. And if it does, it will be the consumers who benefit.

  

In return, the business that offers such superior services set their prices, which in turn ensures high profits.

If your product is no better than your competitors’, you will have to set your prices low to entice customers away from the competition, which erodes profit margins.

Take the highly competitive airline industry where prices are set so low that, in 2012, a single passenger trip generated a measly $0.37 of profit.

Google, on the other hand, keeps over a quarter of its revenues as profits.

Monopolies thrive thanks to technological advantages, network effects, economies of scale and great branding.

What exactly makes monopolies so successful?

Typically, monopolies share some combination of four beneficial characteristics:

First: they have a technological advantage: their proprietary technology works much better than the competition – usually, at least ten times better.

Example: Google’s search algorithms, are much faster and have better predictive power. This makes it very difficult for a competitor to replace them.

Second: monopolies enjoy network effects, meaning the more people are using their product, the more useful it is.

Example: Facebook would not be very useful if none of your friends was signed up. Many of the people in your network can be found there. This means that newcomers face an uphill battle when trying to lure customers away from monopolies with broad existing customer-bases.

Third: monopolies benefit from economies of scale:

Example: You own a bakery, and have fixed costs like rent, heating and electricity, totalling to $1,000.

In this bakery, you can produce between 1 and 10,000 buns a month, the fixed cost remains the same. The more buns you sell, the more you can earn.

Fourth: monopolies often have strong brands that cannot be replicated.

Example: Apple is the strongest tech brand in existence today. While many other companies have tried to match their sleekly designed products and stores, they have not seen the same level of success because they lack Apple’s powerful brand.

When analysing a business, look at these four characteristics to understand if they have or are close to having a monopoly.

Successful companies need to chase secrets that others cannot copy.

In today’s high-tech world, it is tempting to think that there is no more room for vertical progress or that there are no new ideas to be created.

This is a dangerous misconception and this thought can keep you from being successful.

The world still has plenty of secrets – that is, things that are important but which most people do not know about or agree with.

This makes them hard – but ‘NOT IMPOSSIBLE’ – to discover. Often, the secrets are so deeply embedded in society that it might take generations to discover them.

  

You need to work towards finding these secrets. Otherwise, you will just be another provider of horizontal progress, offering regular products in a competitive market.

Let us look at the case of Hewlett-Packard (HP). In the 1990s, the company had the best technology and would launch innovative products regularly, like an affordable colour printer and an all-in-one printer, copier and fax machine – a truly wild idea at the time.

However, with time HP stopped chasing secrets and inventing new products as a result by 2000s, it lost half its market value.

Building a successful, profitable company takes years of work.

As mentioned above, it is normal to think monopolies are damaging for customers and business. However, the fact is no one starts an idea as a monopoly, building a successful monopoly takes time.

It takes years for a start-up to make profits. However, some start-up might not be generating profits but definitely, are creating value.

PayPal is a classic example: in 2001, it was not making any profits.

However, when the author looks back, he realizes most of the profits today were because of the values created many years ago.

The lesson to be learned: You cannot be the top dog in your business from the beginning, you need to be prepared to stick around for the long run. That is what will make you profitable.

So how can you make your start-up a profitable monopoly?

You need to start small and then expand a bit by bit.

First, understand that you need not be the best in every business. Just ‘FOCUS’ on the strength of your product or idea.

So it is important to define your market as narrowly and specifically as possible. This will make it easier for you to become its dominant player.

After you have obtained a monopoly in this niche, you can move on to the next broader market.

From the very beginning, Amazon founder Jeff Bezos had the ultimate goal of becoming the world’s greatest online retailer, but he started much more narrowly, selling nothing but books.

Only after Amazon conquered the book market did it expand to other categories like CDs and videos, and from there to other products.

So, contrary to what many think, Amazon’s success hardly happened overnight.

Start-ups need a solid foundation: the right people and culture, and balanced owner interests.

Every company needs to lay a solid foundation to survive in the long run. So when you start on the long road of building up a business, the first days are crucial.

The first key component in this foundation is finding the right people. Typically, start-ups are so small that every single person on the team plays an important role.

Another key factor for a strong foundation is ensuring that the different interests of the various company owners are balanced. After all, the founders and investors may have very different interests, but the company should not have to suffer from such misalignments.

  

For example, the founders of the company may wish to develop their products patiently, whereas the board of directors usually wants to bring in profits as soon as possible.

While these interests are not mutually exclusive, they can cause conflict, so it is crucial to define a way of resolving such conflicts early on.

Finally, start-ups should also try to instil a strong culture in their teams because it helps everyone work effectively together.

Company culture does not consist only the perks you offer, like a pool table and a soda machine, but rather the relationships that people have.

Your products will never sell themselves: your team needs to do that.

Sales is a vital necessity. Many people, especially those enthusiastic about technology would prefer to focus on product innovation, but innovative products are worthless unless they are sold.

There is no new product on earth that people will buy without you selling it.

To sell your product effectively, you need a good distribution. This not only includes your sales channels but also the efforts the organization takes to sell your products.

To leverage your distribution most effectively, you always need to consider the potential of each client before deciding how much effort you are willing to put into making the sale.

For example, the author co-founded the data analytics company Palantir, where a single closed sale usually brings in several million dollars. Here, the CEO has to personally do the selling, because clients spending such sums expect a certain amount of personal involvement from the seller’s executives.

In another business where single sales deal only bring in a few hundred thousand dollars apiece, it would not be an efficient use of time for the highly paid CEO.

However, the CEO would still need a solid sales team to represent the company.

Founder’s vision is crucial for any company.

What do you think a typical start-up founder looks like?

Let us take an example to understand the importance of vision for a company.

Steve Jobs was kicked out of his own company, he made a comeback in 1997, Apple was almost on the verge of failure and nothing much was expected for it. Steve launched the iPod, which analysts brushed off as nothing but a cool gadget for Mac users.

But the true genius of Jobs’s plan was revealed when Apple launched the iPhone and iPad, creating a family of Apple’s “post-PC devices” distinguished by their sleek looks and exclusive features.

Jobs had effectively made Apple the most valuable company in the world by following a carefully thought-out plan based on his vision.

This wonderful story clearly shows the importance of the

‘VISION OF THE FOUNDER’

I hope you loved reading this summary! 

Please Note: I have omitted many key points and examples from the book, if you have liked the summary I am sure you will love the book. Please go ahead and purchase the book and encourage the publishers. Here is the link Zero to One ( 👈 LINK)

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Reading the key points regularly is very critical, only then we can remember and apply the lesson at the right moments. 

Summary of Summary:

Growing horizontally is important, however, vertical growth is the actual game changer.

Monopoly is good for both, the company and the customers.

Create solutions that have a technological advantage, networking effect, ensure it is scalable, and people should associate with your brand.

This world has enough new ideas, we need to search and find them. It is difficult but not impossible.

Do not be afraid to start small, it is ok to be small at the beginning. Make sure you make regular and consistent progress.

You need an excellent sales pitch to market your product, this is very critical for growth.

Do not try to do everything in your field, dominate one niche at a time.

Find a small niche where you can do something better than any of your competitors. Once you have established a monopoly there, you can expand to other markets later.

Developing a new product with better features is good, however, developing something which others do not offer is the game-changer. This might make you the market leader.

Dear Readers,

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I would be very glad to hear your feedback, in fact, it will motivate me to continue my journey of, Blog and Teach.

Thanks for reading, I hope you apply some or all the lessons learned and become a better person consistently.

All the best!! 👍👍👍

Cheers 🍹

Intelligent Investor