Is Peter Thiel the next robber baron?
Reviewed in the United States on 28 June 2017
In this chest-thumping book, author Peter Thiel comes off as a brilliant young man with a tendency toward exaggeration. Indeed, everything about him seems exaggerated: his businesses successes (founder of PayPal and Palantir), his net worth ($1.5 billion and counting), his educational credits (Stanford BA in philosophy, JD in law), his political views (avowedly libertarian), his energy level (off the charts), his self-confidence (not a doubt in sight), his vision for technology (human longevity, “seasteading” communities, eventual takeover by intelligent machines).
And now this book.
Let me assure you that Zero to One is worth reading, even if you’re not engaged in the world of startups and venture capital. It’s worth reading in the same way a triple espresso is worth drinking: it makes you feel superhuman, at least for the moment. You can almost hear the caffeine coursing through your veins as you absorb the ideas.
You might want to read the book on two levels: both as a business book and as a political manifesto. And because the book is a hybrid, you may need to work a little to separate the baby from the bath water.
Thiel’s first point is that creating a game-changing company means going from zero to one—from nothing to something, instead of going from something to a slightly better something. What a zero-to-one company does is lay claim to an uninhabited stretch of market space in order to create a monopoly. A monopoly, in Thiel’s vocabulary, is not the bad kind we associate with bullies. It’s the good kind that opens up valuable market territory by doing something new.
Is he simply using the word monopoly to provoke us? Maybe, but it’s an effective way to get our attention so he can deliver the book’s main point, which is simply this: Businesses succeed better when they differentiate rather than compete. Direct competition drains value as companies beat each other up. Differentiation creates value as companies charge more for desirable products and services that customers can’t get anywhere else. It’s the same principle that forms the basis of brand strategy. We’ve already seen many books on the subject, including Positioning in 1981, by Jack Trout and Al Ries, and even classical writings on strategy by Sun Tzu and Carl von Clausewitz.
Why play dress-up with old ideas? So Thiel can lash on his peg leg and black eye patch and make room for further piratical assertions.
Consider the following:
“Creative monopolists” give customers more choices by adding entirely new categories of abundance. The history of progress is the history of new monopolies replacing incumbents. “Every business is successful exactly to the extent that it does something others cannot.” Monopoly, therefore, is not a pathology but a condition of success.
While “every monopoly is unique,” he adds, they share these four attributes: “proprietary technology, network effects, economies of scale, and branding.” Without these four, any business will be the equivalent of a family restaurant, where the kids have to wash dishes to keep the place running in the black.
He advises us to “err on the side of starting too small.” The perfect place to start is where there’s a small concentration of people served by few or no competitors. From there you can scale it up, as long as you have the advantages of proprietary technology (your secret sauce) and network effects (the tendency of a service to become more valuable as more people use it).
Whatever you do, don’t “disrupt” a market, he warns. Disruption has been devalued to “a self-congratulatory buzzword for anything posing as something trendy and new.” Disruptive companies in Silicon Valley often pick fights they can’t win.
Also in Silicon Valley, “would-be entrepreneurs are told that nothing can be known in advance; we’re supposed to listen to what customers say they want make nothing more than a ‘minimum viable product,’ and iterate our way to success.” He says that Apple succeeded by doing the exact opposite.
He encourages would-be entrepreneurs to ask this question: “What valuable company is nobody building?” Any good answer to this question must necessarily harbor a secret. It can be a secret of nature or secret of human nature, but in both places there are always hidden truths to be discovered—if we only look in a certain way. When you share your secret, you turn others into co-conspirators.
With contrarian flair he asserts that the less money a startup pays its CEO, the better it will do. “In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.” High pay incentivizes him to defend the status quo instead of working aggressively to find and fix problems.
“The most important task in business—the creation of new value—cannot be reduced to a formula and applied by professionals.” He observes that most founders are contradictions, bigger-than-life characters who can “make authoritative decisions, inspire strong personal loyalty, and plan ahead for decades.” He cites Richard Branson, Howard Hughes, Bill Gates, and Steve Jobs, and tosses in pop icons such as Elvis, Lady Gaga, Michael Jackson, and Britney Spears.
Finally, he examines a range of scenarios for the future of humanity, borrowed from philosopher Nick Bostrom. The most common four are: 1) recurrent collapse, a never-ending oscillation between prosperity and ruin; 2) a plateau, the belief that the rest of the world will catch up to the richest countries, and then we’ll stay at that level; 3) extinction, in which our technology will bring humanity to a cataclysmic end; and 4) takeoff, the idea espoused by transhumanists, in which humans increasingly blend with machines to create a world of complexity and abundance that we can’t even imagine today. Clearly, Thiel is in this camp, although he’s careful not to say it.
This is a fascinating collection of thoughts, including some surprising truths and more than a few exaggerations. So which part of the book is the baby, and which is the bath water?
Let’s start with monopolies. Do they really serve society better than price-busting competitors? Sure, as long as they unleash creativity and generate broad-based wealth. When they mature into self-perpetuating bullies (such as Microsoft, and increasingly Google, Apple, and Amazon) they tend to block other innovators using any means at their disposal.
Next, does every business really succeed exactly to the extent that it does something different? Not quite. First of all, it’s possible to launch a product that’s different but not compelling. Think of Pets.com, Apple Newton, or Clairol Touch-of-Yogurt Shampoo. Second, monopoly status doesn’t always encourage broad success. Monopoly becomes pathology when we create rules that favor a handful of “haves” and in the process hollow out the middle class, as we’re doing now.
He notes that every monopoly is unique, sharing only “proprietary technology, network effects, economies of scale, and branding.” This is one of Thiel’s truest observations. Strong companies are those that start with a unique market position; weak companies are those that fail to differentiate, believing the world only wants more instead of different.
Erring on the side of starting too small is good advice, too, but what about “Don’t disrupt”? He laments that the concept of disruption has degenerated into anything posing as trendy and new. Granted. But wouldn’t it be better to simply reject the popular definition? He could then reaffirm Clay Christensen’s original epiphany in The Innovator’s Solution—the observation that established products can be upended by cheaper or inferior solutions that don’t at first appear to be threats, then later grow into established products themselves. Christensen was the one who first mapped the road to Monopolyville. Couldn’t Thiel give him the credit?
In a sweeping generalization, he claims that Silicon Valley engineers are expected to “listen to what customers say they want” and give it to them. Really? I’ve worked there 35 years and have rarely heard this, except from a few old-school marketers. Even the designers at Apple start with a “minimum viable product” and iterate their way to success. They just do it before they go to market instead of after, so their products seem to spring fully formed from the brow of Tim Cook or Jony Ives.
Thiel has said that one of the book’s most valuable contributions is the notion that a monopoly is based on a secret. This is actually a great way to think about it. An interesting fact about these types of secrets is that they tend to stay secrets long after you tell everyone. If an idea is good enough, goes the saying, you’ll have to ram it down people’s throats. Think about the Aeron chair, the Prius, and even PayPal. None of these businesses launched themselves.
Another of Thiel’s rules is that the CEO of a startup should never receive more than $150,000 in salary. Nice and concrete. It’s too bad more CEOs of incumbent monopolies couldn’t set a similar example, as Jobs did with his annual salary of $1. What message does a seven- or eight-figure salary send to the employee whose innovative ideas are consistently labeled “too risky?”
Finally, are successful monopolists always contradictory characters? Not from where I sit. Warren Buffet, Bill Gates, and Jeff Bezos don’t strike me as particularly contradictory, although I’m sure they’re more driven than they might appear. It could be that Peter Thiel himself is a walking contradiction, and therefore wants to create some positive context for it. He delights in courting controversy, starting at Stanford when he attacked various sacred cows such as political correctness and hate-speech laws in his newspaper The Stanford Review, and now by writing a book that appears to defend monopolists.
Despite its exaggerations, pirated ideas, and libertarian swagger—or maybe because of them—Zero to One makes for a lively read. It contains a number of refreshing insights and personal truths that you won’t get from other books on inventing the next big thing. Just keep the baby and throw out the bath water.
422 people found this helpful