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Zero to One: Wisdom and Straw Men

This Christmas I carved out a bit of time to read Zero to One by Peter Thiel and Stanford grad Blake Masters. It is one of the more thoughtful books on startups that you’ll come across, and certainly makes for compelling reading.

Nevertheless, there are several sections of Zero to One with which it is hard to agree, not because they expound the “contrarian” arguments for which Thiel is well known, but because they can be falsified by consulting the historical record or because they rely upon the construction of straw men that are immediately demolished.

This article provides an overview of the book, samples a few Thielian nuggets of wisdom and deals with two of the book’s straw man arguments. Two other “quibbles” I have with Zero to One are deferred to later articles.

Overview

At a time when many founders are starting companies simply because startups seem cool, and where they’re encouraged to meet new people and build entire companies with them over the course of a weekendZero to One is at its heart a call for founders to think. More than that, Thiel advocates a kind of rigorous contrarianism. Or as Apple might say, to Think Different.

Thiel identifies two basic types of progress: horizontal progress, which can be summarised as globalisation, and vertical progress, which, in a nutshell, is technology. Horizontal progress takes you from something known to multiple copies of that known entity; it takes you from 1 to n. But vertical progress is invention; it takes you from 0 to 1. The latter progress type is what startups should concern themselves with.

Thiel begins by taking stock of how the western world got to where it is now. He takes us on a quick journey through the booms and busts of the nineties, and it is here he lays out his motivations for writing the book. The highs and lows of this period, he says, taught entrepreneurs and investors the wrong lessons. In his experience, companies starting today aim to:

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

Thiel argues that the opposite principles serve as a better guide for startups:

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

Wisdom

The remainder of the book is, more or less, a defence of these principles. In justifying his core argument, he delivers the kind of advice that make Zero to One essential reading. Here are some of Thiel’s nuggets of wisdom.

First mover advantage vs last mover advantage:

It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.

The primacy of secrets:

Belief in secrets is an effective truth… Great companies can be built on open but unsuspected secrets about how the world works.

Thiel’s law:

Every great company is unique, but there are a few things that every business must get right at the beginning. I stress this so often that friends have teasingly nicknamed it “Thiel’s law”: a startup messed up at its foundation cannot be fixed.

On “extending the founding”:

The most valuable kind of company maintains an openness to invention that is most characteristic of beginnings. This leads to a second, less obvious understanding of the founding: it lasts as long as a company is creating new things, and it ends when creation stops.

Thiel also has a list of seven questions he believes every company must answer, but rather than reproduce them here, I encourage you to read the book!

Aside from these sorts of gems, the book offers a strong written style, which this reader found clear and simple, yet keenly intellectual and sometimes even philosophical. It was truly refreshing to read a book about startups from a writer able to draw upon the likes of Marx, Lucretius, Dylan, Tolstoy, Tolkien and Shakespeare in making larger points.

Straw Men

Zero to One is convincing. It is, after all, hard to disagree with a person who has accomplished everything Thiel has. However the book is not without its problems, starting with a couple of straw man arguments that at least one other reviewer picked up on.

Monopoly versus Competition

Economists are preoccupied with competition, because they believe competition, prima facie, leads to efficiencies and the best consumer outcomes. However, companies should aim for monopoly by doing something unique.

To Thiel, these are two intrinsically opposing statements, but are they really? Nobody argues that fierce competition between companies is necessarily good for the companies involved. Plenty of people, on the other hand, understand the value of entering a market that can be won hands down. I mean, what innovative company would not want to completely dominate its market?

Consumers, conversely, appreciate that competition helps keep prices in check and drives incremental improvements in existing product categories. Thiel’s argument is aimed at an intellectual wasteland occupied by no-one.

Perhaps Thiel is arguing that monopolies are actually good for consumers, too, and there is a point in the book where he suggests this. Take Google, which has a huge lead in search and a massive revenue stream from online advertising. It can invest these monopoly profits in creating other innovative products, like self-driving cars and Google Glass.

That’s true, but it doesn’t follow that Google’s monopoly in search is necessarily good for search. Consumers thus rely on competition from the likes of Bing to continue driving improvements in that space at the moment. Therefore, this argument also falls flat.

Lean versus Planning

The second straw man argument constructed by Thiel juxtaposes the lean methodology with planning, and along the way, appears to equate evolution to chance, which, in an otherwise intellectually rigorous book, is a sin that stands out like a sore thumb.

Thiel wants to argue that we should all be optimistic about the future, but that we must act with purpose to bring about that future. In typical style, Thiel gives us a framework for thinking about the future and how to get there:

  1. Indefinite Pessimism (the future is bleak, let’s get stoned);
  2. Definite Pessimism (the future is bleak, let’s plan for that);
  3. Indefinite Optimism (she’ll be right, mate); and
  4. Definite Optimism (we can change the world for the better if we act with purpose).

Thiel views the US as currently having an indefinitely optimistic outlook: things will turn out fine, but you can’t really plan for particular outcomes. The better way forward, argues Thiel, is to be definitely optimistic: to deliberately plan for a better future. So far, so good.

But the argument comes off the rails when he sets up flexibility and agility as the opposite to planning.

Thiel sees the prevalence of lean methodologies in startups as symptomatic of Silicon Valley’s indefinite optimism. Too many of them apparently curtail real thinking about a problem up front, and instead assume “that nothing can be known in advance”, so the way forward is to “iterate our way to success”.

First of all, if startups are doing that, it isn’t because the proponents of Lean advocate the wholesale abandonment of vision and critical thinking in favour of pivoting your way to an idea you can build a startup on. Pivots occur within the confines of your vision, your plans and your passion. It isn’t an approach to figuring out those things to begin with (though some might try).

There is no better illustration of the benefits of remaining flexible than Peter Thiel’s own experience at PayPal. Where would PayPal be if Thiel and his team hadn’t manoeuvred from being a money-beaming business to a money-emailing one? PayPal would be relegated to the scrapheap of failed startups, or at best, a few tech historians might remember it as “one of the 10 worst business ideas of 1999.”

Conclusion

Zero to One is well worth reading, but in many ways, it seems aimed more at investment banker types than startup founders and investors. So many of the insights Thiel passes off as contrarian are widely known and discussed in startup circles, if not entirely accepted. Take Thiel’s own answer to his contrarian question: “most people think the future of the world will be defined by globalization, but the truth is that technology matters more.” A tech investor who thinks tech is more important that globalisation; imagine that!

Zero to One should be applauded for attempting to sketch out a framework for critical thinking about ideas at a point in time when so many of the books and conversations in the realm of startups are dominated by approaches to execution. Thiel says early on in the book, “The most contrarian thing of all is not to oppose the crowd but to think for yourself.”

Touché.

Stay tuned for another couple of articles on Zero to One that deal with a case of historical revisionism and conflicting  investment advice.

About Ricky Robinson

When he's not writing for The Tech Street Journal, Ricky's working at NICTA, Australia’s ICT Centre of Excellence, where he performs a mix of industry engagement, research and, of course, software engineering. Ricky holds a Ph.D. in computer science from the University of Queensland and spent some time in Mountain View, California, at Sun Microsystems Research Labs. Ricky's the prime instigator of TSJ.