Zero to One: A book review by Bob Morris

Posted on: June 2nd, 2015 by bobmorris

Zero to OneZero to One: Notes on Start Ups, or How to Build the Future
Peter Thiel
Crown Business (2014)

How and why, “Only by seeing our world anew…can we both re-create it and preserve it for the future.”

In the first chapter of The Great Reset, Richard Florida explains that peaks and valleys are part of the lifecycle of any society as “obsolete and dysfunctional systems and practices” collapse, replaced by “the seeds of innovation and invention, of creativity and entrepreneurship.” The First Great Reset occurred in the 1870s, the Second in the 1930s, and a Third now underway. Florida suggests, “The promise of the current Reset is the opportunity for a life made better not by ownership of real estate, appliances, cars, and all manner of material goods, but of greater flexibility and lower levels of debt, of more time with family and friends, greater promise of personal development, and access to more and better experiences. All organisms and all systems experience the cycles of life, death, and rebirth.”

I recalled these observations as I began to read Peter Thiel’s brilliant book, written with Blake Masters, and especially when he suggests that the entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:

1. Make incremental advances.
2. Stay lean and flexible.
3. Improve on the competition.
4. Focus on products, not sales.

“These lessons have become dogma in the start-up world; those who ignore them are presumed to invite the justified doom visited upon technology in the great crash of 2000. And yet the opposite principles are probably more correct.” Here they are:

1. It is better to risk boldness than triviality.
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Sales matters just as much as profit.

He discusses each of the eight in (Pages 20-22) and then establishes a framework for an abundance of information, insights, and counsel that can help leaders in almost any organization whatever its size and nature may be) to overcome what Jim O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom,” to challenge the status quo, ask the right questions and then formulate the right answers. In essence, “question received ideas and rethink business from scratch.” As Thiel explains, “Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.”

In this context, I am reminded of an incident that occurred years ago when one of Albert Einstein’s colleagues at Princeton playfully chided him for asking the same questions every year on his final examinations. “Quite true. Each year, the answers are different.” Those who establish a status quo (i.e. the new order) must answer the right questions with the right answers. They then defend it although — over time, as the Einstein incident suggests — prior answers become insufficient (if not dead wrong).

“A new company’s most important strength is new thinking: even more important than nimbleness, small size afford space to think. This book is about the questions you must ask and answer to succeed in the business of doing new things: what follows is not a manual or a record of knowledge but an exercise in thinking. =Because that is what a startup has to do: [to repeat] question received ideas and rethink business from scratch.” Yes, much of what Thiel has to say concerns start-ups but it would be a serious mistake to limit the term to new companies. I think it should also include new ideas, not only about new products and services but also about new policies, new procedures, new experiments, and new metrics. Indeed, new ideas about how to create and then sustain a culture within which new thinking about new ideas is most likely to thrive.

I do agree with Thiel about the issue of size: “small groups of people bound together by a sense of mission have changed the world for the better. The easiest explanation for this is negative: it’s hard to develop new things in big organizations, and it’s even harder to do it by yourself. Bureaucratic hierarchies move slowly.” This is what Jack Welch had in mind years ago at a GE annual meeting when its then chairman and CEO explained by he held small companies in such high regard:

“For one, they communicate better. Without the din and prattle of bureaucracy, people listen as well as talk; and since there are fewer of them they generally know and understand each other. Second, small companies move faster. They know the penalties for hesitation in the marketplace. Third, in small companies, with fewer layers and less camouflage, the leaders show up very clearly on the screen. Their performance and its impact are clear to everyone. And, finally, smaller companies waste less. They spend less time in endless reviews and approvals and politics and paper drills. They have fewer people; therefore they can only do the important things. Their people are free to direct their energy and attention toward the marketplace rather than fighting bureaucracy.”

Make a list of the great project teams and you will probably include Disney’s animators who created so many classic films (Bambi, Dumbo, Pinocchio, Snow White), Xerox PARC, Lockheed’s Slunk Works, and the Manhattan Project. I am unable to grasp fully the leadership challenges these teams posed. Herding cats? More like herding honey badgers…or worse yet, T-rexes. Thiel cites a more contemporary example of a great team in Chapter 10, “The Pay Pal Mafia,” with whom he co-founded a startup in 1998 and later sold to eBay in 2002 for $1.5 billion. Each of them has subsequently been involved in other startups that have also done exceptionally well.

These are among the dozens of business subjects and issues of special interest and value to me, also listed to indicate the scope of Thiel’s coverage.

o Lies People Tell (Pages 25-30)
o Cutthroat Academia: War and Peace (37-43)
o Characteristics of Monopoly (48-53)
o Building a Monopoly: Three Stages (53-57)

1. Start Small and Monopolize
2. Scaling Up
3. Don’t Disrupt

o Can You Control Your Future? (61-69)
o The Power Law of Venture Capital (83-87)
o What to Do With the Power Law (90-92)
o The Case for Secrets, How to Find Secrets, and What to Do with Secrets (101-106)
o Beyond Professionalism, and, Recruiting Conspirators (119-122)
o How to Sell a Product (130-139)
o Complementary Businesses (144-150)
o Seven Critically Important Questions (153-165)
o The Difference Engine (175-180)
o The Return of the King: Steve Jobs (187-189)

Peter Thiel is a world-class pragmatist who is determined to understand what works and what doesn’t as well as why. His final remarks are an affirmation of what is possible, indeed imperative, not only in business but throughout the scope and depth of humanity: “Our task today is to find singular ways to create the new things that will make the future not just different, but better – to go from 0 to 1. The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.”

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