8 lessons from the book ‘Zero to One’
This book is aimed for entrepreneurs. It is written by Peter Thiel, the cofounder of PayPal. He is also known for launching Palantir Technologies and he was an early stage investor in startups like Facebook, LinkedIn and SpaceX. This makes him an entrepreneur, a venture capitalist and an original thinker of our time.
The book premises on how to build companies that create new things. Here are some strong takeaways I deduced from the book.
1.The future will be determined by technology and not globalization
Globalization is simply copying things which have work somewhere and make them work everywhere. This is what is known as horizontal progress. If you have a typewriter and make 100 more typewriters that is horizontal progress (moving from 0 to n). On the other hand, vertical progress is moving from 0 to 1. That is what technology is; it’s inventing new ways of solving problems. If you have a typewriter and build a word processor, you have made a vertical progress. In a world full of scarce resources, globalization without technology is unsustainable. And in order to develop technology, we need to develop start-ups.
2.The business thinking today is not necessarily right
Several popular ideas are stemmed from the Silicon Valley crash of 1999. Entrepreneurs learned lessons which still guide business thinking today. Below are some of them.
· Making small, incremental steps is the safe path forward.
· Planning is inflexible, you should be lean and treat entrepreneurship as agnostic experimentation.
· You should improve the product on the competition, starting a completely new product is risk.
· Product matters than sales. If your product needs marketing, the product isn’t good enough.
And yet the opposite principles are probably more correct;
· It is better to risk boldness than triviality.
· A bad plan is better than no plan.
· Competitive markets destroy profits.
· Sales matters just as much as product
To build a better business the dogmas after the crash must be abandoned, but that doesn’t make the opposite ideas quite true. What you must do then, is think for yourself don’t go after the crowd thinking.
3.What a valuable company looks like
The question you need to ask yourself before building a company is; “What valuable company is nobody building?” Your answer then, should be a secret. Something important and unknown, something hard to do but doable. But creating value is not enough, you need to capture some of the value you create. The only way to capture massive value is by avoiding competition and become a monopoly. A monopoly owns its market and it can set its own prices. Competition means no profit, no meaningful differentiation, and a struggle for survival.
4. Know the power law of venture capital
Venture capitalist aim at identifying, funding, and profit from promising early-stage companies. They only invest in companies that have the potential to return the value of the entire fund, basing on the companies’ unique potentials.
5.Build a strong start-up foundation
The most crucial decision you will ever make is choosing a right partner(s). This means the founders should know each other well; their technical abilities, complementary skill sets and how well they can work together. This applies to the rest of the team members as well.
To anticipate likely sources of misalignment in any company, it’s useful to distinguish between three concepts:
• Ownership: who legally owns a company’s equity?
• Possession: who actually runs the company on a day-to-day basis?
• Control: who formally governs the company’s affairs?
6.Sales and marketing matters
Advertising is necessary because the best product doesn’t always win. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business — no matter how good the product. In general, the higher the price of your product, the more you have to spend to make a sale.
7.Will machines substitute humans?
Properly understood, technology is the one way for us to escape competition in a globalizing world. As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements. The most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?
8.Questions every business must answer
1. The Engineering Question; Can you create breakthrough technology instead of incremental improvements?
2. The Timing Question; Is now the right time to start your particular business?
3. The Monopoly Question; Are you starting with a big share of a small market?
4. The People Question; Do you have the right team?
5. The Distribution Question; Do you have a way to not just create but deliver your product?
6. The Durability Question; Will your market position be defensible 10 and 20 years into the future?
7. The Secret Question; Have you identified a unique opportunity that others don’t see?
If you have answers to at least five of these questions, your business is good to go.
