Insights From Peter Thiel's "Zero to One"

A Book Report from The Digital Leader

The Digital Leader Newsletter — Strategies and Techniques for Change Agents, Strategists, and Innovators.

Need a late summer reading recommendation? Want to rev up your innovation engine? Need a good framework for evaluating a “disruptive technology” or a business model?

I had all of those needs and grabbed Zero to One: Notes on Startups, or How to Build the Future by Peter Theil, which was sitting on my home bookshelf. I was stunned at the insights I took from it — and I’ve read it before! When it comes to crystal clear thinking on innovation, investing, and thinking about the future, this is one of the best. This book is full of durable “first principle” style insights and frameworks. For both your benefit and to help me commit to recall the rubrics and perspectives, I deliver my first The Digital Leader Book Report. Feel free to get your red pen out and send me a grade!

Zero to One: Notes On Startups, Or How To Build The Future

Based on a series of lectures Peter Thiel gave at his alma mater Stanford University in 2012, this book delivers its promise — principles to go from “nothing to something” with a differentiated capability. These principles are applicable for consideration for any business or product strategy as they steer the reader to create a new market where there is no competition, versus “competing” with a marginally better offering in an existing category. In this way, the learnings from this book are a complement to Blue Ocean Strategy and to my personal favorite newsletter, Category Pirates (find it on Substack)

Setup

For our democracy to remain vibrant, it is critical for the US to retain its supremacy in new value creation through innovation. The premise of Zero to One aligns with my mission of helping leaders and teams be deliberate on an innovation and growth agenda.

Unless they (American Companies) invest in the difficult task of creating new things, American companies will fail in the future no matter how big their profits remain today (preface, Zero to One).

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Peter’s insight that technology is a “miracle” as it “allows us to do more with less” unlocks what the real digital journey is about. When companies are on a “digital transformation” (and who isn’t?), “doing more with less” is *the* essential definition of what we are trying to accomplish. This comes from reducing friction (both for your customer and for your operations).

The book starts with a provocative question, one that the author uses during job interviews. “What important truth do very few people agree with you on?” I will give my answer at the end of my book report. This question is essential in creating a new category for two reasons. First, it forces unconventional, differentiated strategy thinking, and second, it creates an idea that can then be defined, broken down, and pressure-tested — the answer starts our innovation process.

Peter outlines four falsehoods and the alternate principle to that falsehood. These four principles are topics I wrestle my clients on all the time. And by “wrestle”, I mean I act as my client’s conscious to not backslide to comfortable, low-risk traditional thinking. Peter’s principles to learn from Silicon Valley are

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 product1

A “bad plan is better than no plan” is a keen insight. When I consulted at the Gates Foundation (8 years, 40+ projects), they would typically create a “theory of change”. This was essentially systems thinking and a plan for how change happens in an ecosystem when you actually can’t make a plan for it. By thinking through the theory of change, it would always help us better understand our journey, assumptions, risks, and levers needed to be pulled to get the intended outcomes — we built a “bad plan” as it is better than no plan at all.

In chapter 6 — You Are Not A Lottery Ticket, Peter continues on this theme of planning versus counting on luck.

A whole generation learned from childhood to overrate the power of chance and underrate the importance of planning2

and

But iteration without a bold plan won’t take you from 0 to 1. A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen? Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best3

Part of this planning is envisioning the endpoint and then working backward. Amazon uses an envisioning technique called a “future press release” and writing narratives to conduct this future envisioning, describing a journey (aka plan) with the best thinking you have at that point. It works.

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Theil’s Law — “a startup messed up at its foundation cannot be fixed”. Peter discusses this exclusively in the context of a startup and goes on to say that founders should share a history. But creating a startup within an existing enterprise has a similar version of Theil’s law. This version is that the “founder” of a “startup” within an existing company needs to be a big enough leader to lead this business to be either $500M in revenue or equal in size to the current company. At Amazon, the concept of a single-threaded leader — a senior leader 100% focused on a new endeavor, is how they equip the foundation of a startup for success within the enterprise. Underneath that single-threaded leader, the vast majority of the team needs to be 100% assigned to the mission. This helps build the “cult” that Peter believes is key for success.

In the chapter “If You Build It, Will They Come?”, Peter outlines the great fallacy of startups — that it’s all about “the product”.

“Superior sales and distribution by itself can create a monopoly, even with no product differentiation” and “most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure”.4

Marketing, sales, channel design, and business model design — often overlooked and not viewed as needing re-thinking and innovation. But the truth is new endeavors often require innovation in these functions for a startup (independent or within a big enterprise). But what happens in a big enterprise? The brand police say “no” to any variation and the sales and distribution leadership get territorial. Everything needs to be re-thought in innovation — not just the product.

Seeing Green

In the chapter, “Seeing Green”, Peter gives “the seven questions that every business must answer. These are an essential set of screening questions for your concept.

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?5

Pure gold. Full stop. I would put The Secret Question first, but pure gold.

My Answer for “The Secret Question”

“What important truth do very few people agree with you on?” is the secret question Peter asks to start chapter one.

My answer is that if we could “re-invent” the internet, all ~1.5 billion websites, and make them “machine-interpretable”, an entirely new era of internet-enabled innovation would be birthed. I won’t go any further than that here — but I will in the future.

I leave you with another last nugget from Zero to One:

A new company’s most important strength is new thinking6

The Digital Leader Newsletter is here to help you think and communicate better.

Onward!

John

About The Digital Leader Newsletter

This is a newsletter for change agents, strategists, and innovators.  The Digital Leader Newsletter is a weekly coaching session with a focus on customer-centricity, innovation, and strategy. We deliver practical theory, examples, tools, and techniques to help you build better strategies, better plans, better solutions — but most of all to think and communicate better.

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1

Page 21, One to Zero

2

page 69

3

Page 79

4

Page 130 and 138

5

Page 154

6

Page 10