“When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work-going from 1 to n. … Vertical or intensive progress means doing new things-going to 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. … At the macro level, the single word for horizontal progress is globalization-taking things that work somewhere and making then work everywhere. China is the paradigmatic example of globalization. … The single word for vertical, 0 to 1 progress is technology. The rapid progress of information technology in recent decades has made Silicon Valley the capital of ‘technology” in general.” – from Chapter 1. The Challenge of the Future
ARE YOU MAKING INTENSIVE PROGRESS FOR THE FUTURE FROM ZERO TO ONE?
Let us have a short time for a thought.
- As an individual, are you having a copied life or creating something for your progress in life?
- As a company, are you doing the similar things as others in the market or are you creating something that no company has ever done in order for your progress?
- As a country, are you making a copy from other countries or fiercely striving to create something for your future?
Humanity’s progress and the resulting prosperity as of today was only possible due to the technological progress. Nobody will argue that without technological progress (that will bring us to the next stage of existence), the humanity’s future is bound for failure. In this aspect, it’s no wonder that the countless startups in Silicon Valley, once their technology (and the picture of the future that it will create) is approved, make a huge fortune in fortnight, proving it’s a big stake.
This book by Peter Thiel-the famous businessman as Paypal cofounder and Facebook’s first investor and philanthropist-is about the startups. Initially a lecture on startups in Stanford in 2012, it was refined and published as a book to reach a wider audience, aiming to provide firstly the author’s insights on the present world we are in and on the coming future, secondly what the startup’s model should be, thirdly some future hurdles to consider, and lastly the conclusion with the expected shape of the future. Some important statements in a few bullet points below.
- Startup Thinking Facing The Challenge of The Future
New thinking for new technology. Small groups of people bound together by a sense of mission have changed the world for the better. A startup is the largest group of people you can convince of a plan to build a different future. Startup has to question received ideas and rethink business from scratch.
- Lessons From The Party in 1990s
The lessons learned from the dot-com crash struck entrepreneurs four big lessons that still guide business thinking today.
- Make incremental advances
- Stay lean and flexible
- Improve on the competition
- Focus on product, not sales
However, author suggests to get over this dogma with opposite principles.
- 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 product
- Competition Myth and Monopoly Capitalism
Don’t be a company that can create a value without becoming very valuable. Under perfect-competition(that we know in economics to be the ideal and default state), even very big businesses can be bad businesses(of which example is the airlines industry with thin profit margin). The author believes capitalism and competition are opposites, in that capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. Hence, the lessons for entrepreneurs: if you want to create and capture lasting value, don’t build an undifferentiated commodity business. For a business perspective, only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
Then, there comes the bad reputation issue of a monopoly. A monopoly is good for everyone on the inside but the profits come at the expense of the rest of society. The author agrees that the profits come out of customers’ wallets but only in a world where nothing changes. The world we live in is dynamic; it’s possible to invent new and better things. In this sense, ‘creative monopoly’ is suggested in that creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of the society; they are powerful engines for making it better. He thinks the history of progress is a history of better monopoly businesses replacing incumbents. All successful companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
- Building a Monopoly: The Last Will Be The First
Certain key characteristics for startups as monopoly: proprietary technology, network effects, economies of scale and branding. How to build it?
- Start small and with a very small market.
- Scale up. First dominate a specific niche and then scale to adjacent markets.
- Don’t disrupt. Don’t directly challenge any large competitor.
- Be the last mover. Make the last great development in a specific market and enjoy years or even decades of monopoly profits.
- Indefinitely Optimistic World, The Power Law and Finding Secrets
The U.S. in 1950s to 1960s was full of definite optimism and conviction. The future was bright and you only had to set a goal to achieve it. Today, we lost faith in a definite world. When finance eclipsed engineering since 1970s, we think the future will be better but don’t know how exactly thus don’t make any specific plans. This indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it? Startups need to find a way back to a definite future by planning and rejecting Chance playing a role.
Also, given the fact that we live in a world under a power law not in a normal world, startups have to be able to think in this term. Venture Capital has a rule that they only invest in companies that have the potential to return the value of their entire fund. In this sense, VCs always strive to find the handful of companies that will successfully go from 0 to 1. The implication of this to startups is that you should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
Lastly, the ability to find the secrets(or edges) to build a valuable company that nobody is building is important. The world we are in (due to incrementalism, risk aversion, complacency and flat globalization) made finding the secrets impossible, but as we can see from Uber or Airbnb cases, secrets can be found.
- The Importance of Sales
The nerds-the engineers- have to get over the mindset that if a product is great enough it sells itself. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business. Product distribution matters and it follows a power law of its own. Opt for the right sales strategy as per the size of the company and if your company is just you and a computer, you yourself has to sell. Everybody is a salesperson.
- Singularity For You and For The Future
Out of several pictures predicting the distant future, the author terms the distant future of humanity as Singularity, which is the outcome of the new technology so powerful as to transcend the current limits of our understanding. We need to find singular ways to create the new things that will make the future not just different but better to go from 0 to 1. Think for yourself as the first step. By seeing the world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.
CONTEMPLATION: AN ELABORATION OF BUILDING AN EXTRAORDINARY STARTUP WITH THE COMING FUTURE IN MIND
When you define a great mind, what comes first in your mind? Fortune is made, and the fortune made by each individual then circulates back to the society creating a virtuous cycle in the economy. I want to define those individuals rather as a leading mindor an extraordinary mind since the concept of great mind is too huge. When you think about Elon Musk or Peter Thiel who are boldly shaping our future scene by their technology and their firms, I think they are qualified to be called ‘a leading mind.’ Given there are numerous startups either fading or thriving even at this moment, their success seems far out-of-reach dreams.
For their visions to be material and their technological venture to be a success, there must be something that certainly differentiates them from others. They not only had to be different but also had to be extraordinary marking their presence clearly. I think this book is right about this. How those successful ventures from 0 was built up to 1 and how a new startup can be built formidably like them.
What I enjoyed in this book:
Firstly, I enjoyed how the author is defining the current state of the world in a philosophical framework, the definite vs. indefinite optimism or pessimism. In our indefinitely optimistic world, the youth pursues many-sided mediocrity calling it well-roundedness since they don’t know what the future will be like and they don’t have conviction for anything. It was quite spot on!
Also, his perspectives toward those default set of economical terms – competition vs. monopoly – as a business owner who needs to make a profit, grow business exponentially, and to create value was also convincing. Once you try to survive the competition, you will perish. You need to go beyond the competition. Aim to make a creative monopoly by creating a definitely differentiated value and meaningfully contributing the society as a result.
The power law we are living under was a persuasive factor to note for me let alone for startups and venture capitalists. In conclusion, you have to be extraordinary. Soar from being the mere player in the market. Find the edge – the secret – for your startup business idea just like Uber or Airbnb. Refuse the conventional system that requires you think incrementally- step by step progress so to speak-, avoid risk-taking and be complacent so that you seek the conventional career be they banker or lawyer.
Lastly, his optimistic view about the future – Singularity – gave me some relief. Just like the ancients the author mentioned, I also thought the world history would repeat between prosperity and ruin thus had a kind of bleak picture for the future. It shouldn’t be. I think I can now look forward in a bit more positive stance toward the future thanks to him.
One aspect of the book to mention:
Due to his philosophy and law discipline, he enjoyed quoting from some contemporary philosophers and authors. As someone who also enjoys metaphors and philosophical thoughts I enjoyed this aspect, but sometimes it became a bit distracting to get to the core of his messages sometimes.
All in all, I got the strong impression that he, like the other successful entrepreneurs, is a true contrarian. Without risk taking and bold courage to soar from the crowd, you cannot build an extraordinary business. Given the fact the economy runs through boom-bust cycle, after almost twenty years since dot-com bubble, it’s about time by now that we can boldly take a risk and do something different. It’s about time that we get over the old stigma and dogma of having to be cautious and to survive. In this sense, as he emphasizes the right timing for a successful venture, his book was also published at the right time. I want to recommend this book both for entrepreneurs and investors, especially venture capitalists and private equity. What’s good for the investors is that you will certainly have insights what to look for in searching for investment targets. You should never forget to include the one extraordinary company who grows exponentially and compensate all the rest failure costs in the mature stage of your portfolio.
RATING: 4 out of 5
Business, Entrepreneur, Investment, Venture Capital, Private Equity
ABOUT THE BOOK:
Author: Peter Thiel
Published: 2014, USA
Publisher: Crown Business