The origins of ‘Zero to One’ lay in a classroom course, Peter Thiel taught at Stanford university in 2012. Blake Masters, the co-author and one of Thiel’s students at Stanford, went the extra mile and took extensive notes during the lectures which he subsequently published on his tech blog, too. ‘Zero to One’ is a curated and updated version of Thiel’s classroom lectures.
It’s an acknowledged fact that there are no clear-cut, recipe-like methods for startup success. As different things have worked for different ventures in the past, it’s hard to arrive at a definitive magic formula that would allow a startup to ride into the proverbial sunset. In ‘Zero to One’, too, Thiel elaborates on a chunk of broad, industry-agnostic guidelines to help startups get started in the right direction. Below are some of the ground rules I could pick from Thiel’s commentary.
a. Startups are the Copernican pivots: Peter Thiel is not betting on entrenched organizations to come up with novel solutions for our world’s problems. To paraphrase him, technology is the lynchpin, the centrifugal force, and startups are the Copernican pivots for building a better future.
Thiel describes two types of technological progress in ‘Zero to One’: a) Horizontal progress – one where learning and copying what others have done will take us from a metaphorical 1 to n (globalization) and b) Vertical Progress – a scenario where we will start afresh and leverage technology to figure out superior solutions for the old and prevalent problems. A neat progress from 0 to 1 (reusable rockets, additive manufacturing).
b. Kill off your competition or steer clear of it: Thiel cofounded PayPal in 1999, a time most people look at as one marked by sheer greed and towering insanity. The survivors left in the wake of the dotcom crash learnt some important lessons. Thiel whose PayPal came out unscathed, sheds light on two key takeaways from the crash. First, the importance of creating a monopoly business. A startup built around a unique, differentiating idea carves its own space sooner than later. Such entities often focus on a small category to start with, turn their early wins into a beachhead and then, scale from there.
On the other hand, a venture sans a strong differentiating idea competing in a high-stakes category may never raise its head above water and eventually flounder. The second key lesson Thiel shares is the need to avoid getting caught up in a protracted competition. His advice is simple: Either annihilate your competition in the bud or avoid it altogether. Staying at loggerheads with your rivals only decelerates your own firm’s growth and eats into your profits. “If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most,” declares Thiel.
c. A clear vision of the future, not randomness, leads to success: This is one point where I don’t entirely agree with the author. Theil exhorts the reader to dispel all the juicy theories about the role of chance or randomness in success. While I contest that it’s important to factor in the role of chance in your endeavors, I agree with Thiel that without human industry and enterprise, luck is only a scapegoat.
d. VCs and the Power Law: “We don’t live in a normal world, we live in a power law,” signals the author. The interesting facet of power law distribution is that it mostly remains hidden. In the startup ecosystems, it’s always a minuscule fringe that makes a disproportionate contribution and takes a disproportionate valuation.
Even VCs realize that power law rules the startup arena. They know that of all the companies in their portfolio, only a handful will work. And out of those handful, one will perhaps radically outperform the whole portfolio.
In early stages, all startups chart more or less a similar course, it’s only over a course of 5 years or so that the good ones will start drifting away from the bad ones. And after a few more years, one odd mega startup will set itself on a different trajectory altogether.
e. Get the foundations right: A startup built on solid foundations – clear vision, well-aligned co-founders and investors – will diversify beyond fiduciary matters. Google is one outstanding example. If it were just another startup with its owners only interested in making a quick buck, selling their stock and jumping the ship, Google might be a different company altogether today. An innovations-deprived company, perhaps. There might still have been Google search – the world’s largest engine. But there might be no Google as we all know it. If at all it worked, it worked because both Larry Page and Sergey Brin figuratively intertwined. They shared a vision and sold that vision to the early stage employees, investors and other stakeholders.
f. They don’t fall for the bean bags anymore: Thiel opines that the organizations where interactions between employees go beyond transactions will have more robustness built into them. Bean bags, Ping Pong tables, on-the-fly sushi chefs are not the pièce de résistance of a startup; well-oiled and tightly knit teams are. So hire people who actually like working together, and who relate themselves to your mission.
g. A mediocre product with a stellar marketing will any day beat a great product sans good marketing: If you run a business, you need a communications strategy. Thiel elaborates that no matter how swanky your product line is, unless you have a solid sales strategy in place, it’s doomed to fail. Most entrepreneurs, especially, the IT geeks harbor an instinctual aversion to the idea of sales and marketing. Their belief is in their product, but the world doesn’t work that way. He sums it up, “Poor sales rather than bad product is the most common cause of failure.”
h. Machines won’t make us obsolete: Thiel backs the man-machine compatibility. He remarks that technology without the human complementation can’t work. Similarly, human intervention in technology framework only results in better solutions to the hard problems we are trying to solve.
i. Founders had better steer clear of hubris: If there is one thing about startups that garners rapt attention other than matters of money, it’s the founders. Media showers unabashed attention on startups. More often, the stories about the idiosyncrasies of the founders – factual or apocryphal, it doesn’t matter – become the fodder of folklore. Thiel observes that while this adulation serves the entrepreneurs well, they’d better not drown in the sea of crowd worship. “The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.”
j. Singularity: Thiel discusses the scenarios which could transpire given the way technology continues to unravel. The exponential growth of computing power as underlined by Moore’s law might one day lead to a technological singularity – a scenario where new technologies will transcend the current limits of our understanding. Thiel asserts how the future unfolds is contingent upon how we act today. Hence, we must continue to strive every day to move from 0 to 1.
I totally admire Peter Thiel for his formidable pedigree. He is someone who has seen both thumping success and dismal failure; someone who has always had his skin in the game. ‘Zero to One’, in my view, is the essence of Thiel’s distinguished foresight and intellectual savvy. For those taking the plunge and those struggling with their new ventures, this book is a must read. However, don’t expect it to be a bit-by-bit manual for launching startups and raising finance. Because it’s not. Think of it as a broad-based rulebook. On the negative side, there as a few parts in the book where Thiel goes heavy on theory in order to drive home his ideas. Notwithstanding the inconsequential laxity, this book brims with wisdom and insight.