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Introduction
Inform others that you’ve started or intend to start a business and there’s a good chance they’ll perceive a solicitation for advice! In this sense, it resembles career issues more broadly and other “big” things like romance and child-rearing. To hear enough of this advice is to realize that people will fervently recommend contradictory ideas. Examples include:
Raise money from investors vs. “bootstrap” your new venture
Quit your job and go “all-in” on the new company vs. don’t quit until your side hustle income surpasses your primary income
Wait until you’ve matured to have kids vs. have kids while you’re young and more energetic
Closely guide your kids vs. let them cultivate their own interests
These are of course, simplifications, and there are countless ways to split these A-B choices into A-B-C-D menus ad infinitum. The point is, the most practical way to deal with this uncertainty is to pick a framework and execute behind it, modifying along the way as needed. This week’s book, Zero to One, presents the framework developed by its author, Peter Thiel, in his experience as a successful tech entrepreneur, investor and even intellectual.
It’s notable that so much lip service is paid to Zero to One by a greater Silicon Valley that – at least publicly – seems to defy many of its main arguments. Zero to One is one of the most likely books to come up in a venture capitalist’s or founder’s recommended reading list, yet some of the book’s key ideas are just as contrarian today as Thiel intended for them to be at the book’s publishing in 2014. These very ideas are worth discussing in Citizen Scholar, especially given their relevance to understanding the nature of capitalism and of technological progress.
A Guide for Founders
Zero to One presents its advice for [would-be] startup founders by combining theory and case studies – Thiel is critical of business books that focus too heavily on one bucket or the other. The book’s first major contrarian idea is Thiel’s view of what makes a strong company in properly functioning capitalism. Most thinkers closely associate capitalism with competition; Thiel rejects this idea and believes that monopolies are at the heart of healthy capitalism.
One reason is that mainstream economic theory concludes that perfect competition brings excess / economic profits to zero in the long run. More tangibly, companies that seek to compete in an existing market likely aren’t creating something truly new. The bigger the existing market, the fiercer the competition from bigger firms. Smart startups don’t seek to create the next Microsoft or Google – like those firms, they find a small market and rise to dominate it. Once they own that market, they can expand out in concentric circles. We note that this argument must rest on the premise that monopolies don’t gain the political power to forbid their own disruption.
This raises the question of whether today’s venture capitalists and entrepreneurs disagree with the authors on this point, or whether they just shy away from publicly admitting the goal of niche-dominating monopoly as Thiel alleges. Anyone who has seen a startup pitch or has listened to enough Silicon Valley thought leaders has witnessed the emphasis on a large total addressable market (TAM) and how most investors still want to see established business models and demonstrated demand.
Thiel would argue that these companies which seek to build a better mouse trap are not going from zero to one but from one to n – they’re not uniquely doing something truly new. The more those involved with startups focus on truly innovating in this way instead of misusing “zero to one” to mean the achievement of product market fit, the better.
To the authors, the great companies have a “secret”. Acting on the belief that there are still valuable insights which are attainable within the reach of human achievement, these companies discover a unique competency. A great company therefore, shares the value of that “secret” with the world while capturing a portion of the value for its own shareholders. Thiel rejects the notion that the low-hanging secrets have been picked and that remaining ones are too difficult to discover – we share their optimism that there are many secrets left to be discovered that ambitious and intelligent people should still chase.
We also share the authors’ conclusions in the last major point they make. Thiel argues that innovation in the twenty-first century will continue to be a mix of vertical “zero to one” innovation alongside horizontal “one to zero” innovation. Importantly, they advocate that “developed” nations not fall into the trap of thinking they’ve reached an endpoint as the term suggests. The blooming of new industries since 2014 has vindicated the authors and dispelled much of the “secular stagnation” thinking that was common in intellectual circles at the time.
Universal Principles
The above ideas cement views of startups, technology and capitalism that are fascinating. They’re often saluted but less frequently practiced in today’s Silicon Valley. This is especially amusing given how common it is for journalists to portray Peter Thiel as a puppet master who controls Silicon Valley along with a cabal of associates and lackeys.
If a Thiel faction does exist in Silicon Valley, it is influential but certainly not dominant. As much as Thiel has singlehandedly implanted the ideas of Rene Girard among certain tech thought leaders, what’s really notable about Thiel and those associated with him based on shared experiences at PayPal, Palantir and Founders Fund is their track record of repeatedly creating impactful zero to one companies. Thiel emphasizes in Zero to One that successful serial entrepreneurship dispels notions of massive value creation in tech being determined by luck. The supporting argument is relevant for anyone who takes excellence seriously, whether they’re looking to found a startup or achieve greatness in another domain.
To build something great, one can’t treat their lives as a lottery ticket or as an indefinite game they need to stay in until they catch a break. The authors allege that this indefinite thinking permeates our society’s philosophical framework. One manifestation of it is the huge portion of high achieving students who go into lucrative fields that don’t innovate much – investment banking, management consulting, corporate law & finance, and the list goes on. Zero to One characterizes fields like finance as being the only way to make a lot of money when you have no idea how to create wealth. We went into investment banking after college and can empathize with both sides of the argument. Thiel went into corporate law initially, but he now argues that what’s needed instead is a dedication to innovation and the cultivation of the hard skills required to innovate. Thus, while re-reading Zero to One has given us much to think about, one of the most critical points will be what grand plans we’ll set out to achieve within this framework.
All the best,
The Citizen Scholar Team
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Discussion #14: Zero to One: Notes on Startups, or How to Build the Future, by Peter Thiel with Blake Masters