Zero to One - Book review
1 May 2020
Dr. Moria Levy
"Zero to One: Notes on Startups or How to Build the Future" is a book authored by PayPal co-founder Peter Thiel, based on his management course at Stanford University. Published in 2014, it centers on Thiel's recommendations for startups.
Thiel introduces two ways to progress: making more of what exists (1 to 2 to a lot) or inventing the new (0 to 1). He labels the former as globalization and the latter as technology, emphasizing the importance of being an innovator and developing new technologies.
The book covers various topics, including establishing a startup, finding the right idea, work culture, market and customers, investments and finance, and organizational culture. Additionally, it explores Thiel's views on green energy and the relationship between computing and human activity, which should have been included in the summary.
While focused on startups, the book offers valuable insights relevant to all organizations. It serves as an informative read on startup companies during that period.
The author emphasizes the importance of companies working to create a new and better future, developing unique products or services (from 0 to 1). According to him, startups are groups capable of shaping a new and different future.
Establishing a new start-up company
To create long-term value, the author recommends establishing a business with a distinctiveness that sets it apart from other organizations. He compares organizations in entire competition with monopolies and suggests being closer to the monopoly side. Honesty is crucial, as some organizations falsely claim differentiation. The focus should be on being unique compared to the alternative being competed against, not just offering a fantastic product.
Organizations that succeed in becoming a monopoly experience reduced competition, increased profitability, and can invest more in employees, product development, and community involvement. The market is dynamic, and complacency can lead to being replaced by competitors in the future.
For a successful new company aiming for a monopoly, four aspects should be addressed:
1. Unique technology, at least ten times better than competitors (e.g., Google's search engine).
2. Leveraging network effects, where the more people use the products/services, the better the solutions.
3. Building a company that grows stronger and more successful as it expands, contributing to a society that also grows stronger.
4. Creating a smooth transition for customers.
Different companies have varying attitudes toward the future and business uncertainty. The author analyzes the behavior of companies about these attitudes and their combinations across different cultures and types of companies. He concludes that all approaches other than optimistic uncertainty can lead to success. He stresses the importance of not relying solely on luck, as business success is not a matter of chance.
In a company, the founding investors usually lead, and choosing the right partner is crucial, akin to a marriage. Understanding each other well before committing is essential. Founding partners may have unconventional personalities, a mix of introversion and extroversion, depending on the context. Embrace this diversity, as it adds value.
Top team members should be full-time, fully invested emotionally and time-wise. Clear roles and authority must be defined for each member to ensure smooth operations and accountability.
Limit the board to three (or up to five) companies that have issued; no more.
The CEO should earn a salary, but it should be manageable to avoid misjudgment and focus on long-term profitability. Consider offering partial payment in shares and options for the entire founding team, though dividing these can be complex.
The Right Idea:
The ideal idea for society should be valuable and unique, serving both the market and the community. These hidden gems may not be obvious, but they are attainable with insights and inspiration. Look beyond conventional places, like nature and human behavior, where standardization and regulation have yet to take over entirely. Once found, keep these ideas within the company and guard them against others.
Investing in employee selection is crucial. The right choice involves people who possess the skills for the task and have a genuine passion for working specifically in your company beyond just the salary. Ideal employees are those who love the work environment and team dynamics, not just the design or perks. To attract talented individuals, focus on a successful mission and idea and a strong team.
Market & Sales:
From the author's experience and observations in high-tech companies, competition has become more personal and less professional, leading to collective losses. The proposed concept is different: aim to control the market and outperform competitors professionally or merge with them if unable to dominate. Recommendations include starting small in a focused market and gradually expanding, not fretting over competitors, and achieving significant development in specific needs.
Sales are essential, and customers are the lifeblood of any company. Relying solely on an excellent product or service won't guarantee customer acquisition; investing in marketing and sales is imperative. Salespeople are vital; even the CEO should personally engage with large numbers of customers. Personal sales, focusing on customer after customer, are crucial in the initial stages, while distribution and advertising become relevant later for low-priced products. Viral selling is possible if the product's core functionality encourages user recommendations. Ultimately, regardless of position, every employee should function as a salesperson within the organization.
Investments & Finance:
When considering where to invest, founders should decide between investing in a single company or diversifying across various fields. While having a portfolio of multiple investments is possible, focusing on a few critical investments is advisable. The author emphasizes the significance of successful companies in the business-financial realm, as they outperform all other companies combined due to the Power Law. Therefore, investing wisely is essential, as any investment in a less promising venture may not yield returns and can consume valuable time and resources. The key is to identify where one excels and focus efforts there.
In the business world, the author defines a successful company by its capacity to generate future cash flow. The value of a company is determined by its ability to produce money in the future. Low-tech companies typically generate immediate cash flow, while old-economy companies exhibit cash flow stability. In contrast, startups generate cash flow in the distant future. Understanding the nature of cash flow is crucial for assessing a company's financial standing.
Developing a unique organizational culture plays a crucial role in the success of start-ups. This involves creating a culture encompassing external hallmarks, like an appropriate dress code, and internal hallmarks, such as shared hobbies, fostering a sense of belonging akin to a club or even a close-knit mafia, as the author suggests.
Like in other books, I resonate with and implement some of the ideas presented here, while I will learn and incorporate others. There might be certain aspects that don't resonate with me at all. What matters is our ability to continuously learn and embrace new ideas that contribute to our constant improvement. This approach is highly recommended. (M.L.)