Herman Park

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Zero to Stratosphere

The journey of a founder is anything but predictable. This explains why there is market demand for an instruction manual of sorts. Peter Thiel, a famed venture capitalist and a co-founder of the online payment processing firm Paypal, tried to answer this call with his aspirational book, Zero to One. Published back in 2014, the book continues to earn more than its fair share of followers but it is not without its flaws.

Thiel advocates for a “creative monopoly”. Deconstructing this term of art will reveal the core insights underpinning Zero to One. Creativity or “vertical growth” is important for societal progress as Thiel understands it. Business models and products inherited from the past cannot guarantee a better future for society in the long run. He therefore encourages founders to imbue their businesses with a mission which finds expression in an undisclosed market.

“Monopoly” refers to the fact that a great business, built on the fundamental tenets of innovation and quality competition (rather than competition based on regulatory capture or under-handed tactics), will possess a large share of the market and hence generate exceptional returns for its founders and early investors. Companies that can spot value in less than obvious spaces such as life extension, reversal of bodily decay or perfection of human nutrition; or that possess capabilities not found elsewhere will become monopolies in their chosen markets. Other companies will be engaged in an intense zero-sum competition with one another due to commoditisation.

He observes that monopolies tend to exhibit some or all of the following characteristics: best in class technology, network effects, economies of scale and branding. More than anything else there is a bias towards development of advanced technology which reflects Thiel’s background in pushing emerging technologies.

Thiel advises people to act in inverse proportion to their goals. This is contrary to conventional advice which treats the size of a market as a key metric. However, Thiel argues that acquiring a small per cent of a large market rarely works due to the preponderance of incumbents. Far better to focus on a small market that has a few or no competitors and which serves as a stepping stone for entering into adjacent markets or parent markets. He cites Facebook which catered to college students first and ended up serving the entire globe, and Amazon which marketed books before marketing all objects of desire.

A few objections can be raised against Zero to One. As apparent from chapters such as “The Challenge of the Future” and “Secrets”, the book is qualified in an important respect. It purports to be not a “manual” of knowledge but rather a prompt for independent thinking. It is not clear this is quite what the readers were looking for.

Equally, companies rise and fall for a slew of reasons. The book takes account of high-level common denominators such as innovation and quality competition which make for a plausible thesis. But was there not more to the improbable rise of Microsoft, Google, Facebook, Uber, Lyft and Airbnb?

The zero to one model idolises a venture-backed company with a reliable bench of technical talent, a history of purposeful loss-making for a number of years and an utmost dedication to changing the lives of millions. Across the world, resources and opportunities are unevenly distributed. It is therefore difficult to see a large number of people being able to pull off this kind of a business having read Zero to One.

Lastly, the book defies strict categorisation because it traverses many domains other than business. This is part of the book’s broad appeal as Thiel has many interesting notions to share with us. However, expertise in one domain does not mean expertise in another. There are parts of the book which should be handled with care for that reason.

Copyright © Herman Park. All Rights Reserved.

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