Zero to One (published Sep 16, 2014 with 1,206 customer reviews on Amazon) was written by Peter Thiel, co-founder of PayPal and Palantir. He’s also a venture capitalist who founded Founders Fund. Zero to One (0 to 1) talks about the vertical or progressive progress, meaning the process of doing new things and one word to describe is technology. On the other hand, 1 to n is the horizontal or extensive progress, meaning the process of copying things that work such as through globalization (China is one country that effectively uses 1 to n to achieve exponential growth in such a short period of time). Zero to One focuses on using technology to build a monopoly business. It’s also very interesting to note that after PayPal was sold to eBay in 2002, each member of the core team at PayPal would go on and found another company and 7 of those companies each is worth more than $1 billion today including SpaceX, Tesla Motors, LinkedIn, YouTube, Yelp, Yammer, and Palantir. (Elon Musk has founded SpaceX and co-founded Tesla Motors; Reid Hoffman co-founded LinkedIn; Steve Chen, Chad Hurley, and Jawed Karim together founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp; David Sacks co-founded Yammer; and Peter Thiel co-founded Palantir.)
The book lists down 7 important questions that every business must answer to go from 0 to 1:
- The engineering question: Can you create breakthrough technology instead of incremental improvements?
- The timing question: Is now the right time to start your particular business?
- The monopoly question: Are you starting with a big share of a small market?
- The people question: Do you have the right team?
- The distribution question: Do you have a way to not just create but deliver your product?
- The durability question: Will your market position be defensible 10 and 20 years into the future?
- The secret question: Have you identified a unique opportunity that others don’t see?
The most impressive to me is the lesson about monopoly. According to the author, monopoly business must have 4 characteristics: propriety technology, network effects, economies of scale, and branding.
Propriety technology – Google’s search algorithm is one example of propriety technology, which is the most substantive advantage because it makes your product difficult to copy, and your propriety technology must be at least 10 times better than the next competitor.
Network effects – Facebook provides the instant for network effects which were made famous through the movie “The Social Network”. If all of your friends are on Facebook, you will, too. One thing to note is that network effects businesses always start with a small but loyal markets. In the case of Facebook, they started with Harvard students. For Apple, they build a large ecosystem of users and developers (App Store) and this makes more and more people use the platform.
Economies of scale – A monopoly business will get stronger as it gets bigger – that’s the economies of scale. If your business has the power to scale up, it has one characteristic to be a monopoly business.
Branding – Finally, branding is an essential part of a monopoly. Apple has the strongest tech brand today. They built their strong brand through marketing and branding initiatives such as paid advertising, cool branded stores, high-quality materials, sleek design, impressive keynotes and premium prices.
The author also provided 2 main advices on how to build a monopoly business:
1 – Start small and monopolize
2 – Scaling up
These 2 advices were illustrated very well in a recent article that I read on LinkedIn: Scaling Airbnb with Brian Chesky — Class 18 Notes of Stanford University’s CS183C. The article is about the interview by Reid Hoffman (co-founder of LinkedIn) of Brian Chesky (founder and CEO of Airbnb) in which Brian told the story of Airbnb in the early days. One of the things that changes Airbnb’s trajectory when Airbnb was almost broke was the advice from Paul Graham from YCombinator: “It was better to have 100 people who love your product vs. 1 million people who like yours”. This is when Brian and his team decided to do things to make 100 people love Airbnb – these were also things that wouldn’t scale. The Airbnb team would meet with every single host, live with each of the hosts, help them to take photos of their home, and also hand deliver the rent checks to those hosts. This would help to build the personal relationship. And because of these first 100 hosts who love Airbnb so much, Airbnb has won over the investor – managed to raise $600k from Sequoia Capital which then helped the company have enough capital and cash on hand to scale up from there.
Personally, I think it’s easier to draw the formula of success from the already-successful companies. To put the formula into practice, it’s really difficult. In the world of globalization of 1 to n, it’s difficult to re-invent the wheel, especially if you are not a tech guy. However it’s important to change your mindset, to believe that you can do it, even in your everyday work, to strive for 0 to 1. Because when everyone has that attitude, the world will change.