Zero To One by PayPal co-founder, entrepreneur, and venture capitalist Peter Thiel.
The main idea behind Zero To One is that it’s imperative to focus on businesses that create something new, going from zero to one, as opposed to copying things that already work, going from 1 to n.
The author prescribes how to build a company that generates profits well into the future.
To succeed, you need to build and maintain a monopoly.
We’ll start with a concept, why are monopolies critical. Then we’ll look at ourselves, how to position ourselves to start a zero to one type of company. And then we’ll shift to the company, how can we actually build a monopoly? Finally, how do we protect such a monopoly?
First why a monopoly?
The author makes the controversial statement that capitalism and competition are opposites. That’s because capitalism is all about generating profits, whereas competition eliminates profits.
Competition is all about lower prices and margins. In contrast, monopolies enjoy high profits and afford a company the luxury of investing in the future because the profits will compensate for such investments. Therefore, entrepreneurs should be intent on creating monopolies.
So the question is, how to create and maintain such monopolies?
It all starts with looking at ourselves. The author has the contrarian belief that success is not a matter of luck.
If you think your future is ruled by luck, you have to be ready for anything.
Our entire system is built on this premise, and emphasizes diversification in education and skills.
In high school, you spend the exact same time on each discipline, same thing in college.
We are rewarded for knowing just enough of everything.
You’ll be average at everything, and really good at nothing.
Instead, taking the approach that you can actually shape your own future, you will think very hard about your next steps, and take the time to plan ahead.
You are not a lottery ticket.
Getting laser-focused early on can help you develop standout skills, and come up with those zero to one solutions we so desperately need.
So how do you go about building a monopoly?
First, develop a zero to one type offering for a niche market and then scale up.
You need to come up with a product or service solution that delivers a 10x speed, performance, or convenience benefit over the status quo, in order to get noticed and shift consumer behavior. And don’t worry about global domination at these early stages.
In fact, talking about addressable markets in the billions is a red flag because these markets often lack a good, well-defined starting point, and they face a lot of competition.
Remember, the key to success in value creation is to avoid competition at all costs.
After all this work, you’re still not finished because a monopoly isn’t worth much unless it can be protected.
You can maintain your monopoly through network effects, economies of scale and branding Network effects address the value of your offering.
The more users you have, the greater the value to each user, making it more difficult for someone to compete with you later.
Economies of scale address your production costs.
The larger your volume, the lower your average cost because of high fixed costs, making it difficult for a competitor to generate any profits. And branding addresses awareness, which lowers your distribution costs.
A competitor will need that much more upfront investment in advertising to generate awareness and penetrate your market.
The author has three core beliefs that form the backbone of his prescription for success, globalization is doomed without technological innovation, capitalism is the opposite of competition, and we can shape our own future.
Therefore, we need to focus on specific skills that will prepare us to create innovative startups with monopoly power, and we need to figure out ways to protect these monopolies.
The bad news
we need to make bets on the future which to a certain extent is unknowable.
The good news
As the author says, even a bad plan is better than no plan.
Perhaps not the most optimistic conclusion, but it’s encouraging us to plan ahead, so that at least some of us may come up with these much needed zero to one startups.