Zero to One: Notes on Startups, or How to Build the Future

This book came out of a course about startups that Peter taught at Stanford in 2012. My overall experience of reading this book front to back once and selected passages twice has been a very unsettling one in a positive way. It would be an understatement to say it is thought-provoking.

Many opinions shared in this book shake up the conventional beliefs, particularly the part dissecting how profoundly flawed our education system is. For example, educating people like a manufacturing pipeline, pushing people to think alike, being competitive for certain metrics, being “good” in many areas but “great” at none etc. Peter’s discussion on competition and monopoly challenges the conventional view that most of us are accustomed to: that competition is good and monopoly is bad. Partially to blame are the educational experiences we all had in competing against our peers to get ahead at school. Partially to blame is the distortion of our perceptions of the two as a result of legislation, morality or bending the facts to support our arguments. From an entrepreneur’s point of view this conventional view is not necessarily correct. This part of the book was one of the most stimulating debates for me. With the belief that I think for myself and do not agree blindly with others, I found myself taking the risk of being unoriginal and agreeing with his points on monopoly and competition. Last but definitely not least, compared with many other (non-fictional leadership/management/entrepreneurship) books I read recently, the writing demonstrates that the author has very high-powered and unyielding points of view charged with great logical reasoning. In my imaginative world, by reading this book I experienced what an ancient Roman citizen had while listening to the great orators debate in the Roman Forum (such as Cicero, about whom I wrote three blog entries earlier). A law school education certainly contributed to this. This supports one argument in my previous post on immersing in a new domain and broadening the frame of reference. To me, a human life is wasted, if you do not have, and are willing to defend, strong beliefs about what matter to you, under the condition that you stay open-minded and let your beliefs evolve as you gain more insights.

The book started by asking a contrarian question: What important truth do very few people agree with you on? Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future. Peter classifies the progress we could make towards a future into two forms: horizontal (or extensive) progress and vertical (intensive) progress. The former means copying what has worked before, going from 1 to n; the latter is about doing new things, going from 0 to 1. Globalisation is a typical approach of horizontal progress, while technology is the vertical one. Circling back to the contrarian question, Peter’s answer is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more. The argument is supported with a few examples. The gist is that globalisation without new technology is unsustainable.

Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding. This book has broadened my view on what qualifies as proprietary technology. It is not limited to patents. Proprietary technology must be at least an order of magnitude better than its closest substitute to lead to a monopolistic advantage. Depending on how you view this, proprietary technology is rather more broadly defined than developing new patents or acquiring patent rights; or, viewed more restrictively, a new solution that is only mildly better than the existing widely adopted products might not be significant enough to attract the customer base.

Below I share with you some selected passages from the book that have stirred up a lot of thinking on my part.  

Today’s “best practices” lead to dead ends; the best paths are new and untried.

The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

Brilliant thinking is rare, but courage is in even shorter supply than genius.

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think. This book is about the questions you must ask and answer to succeed in the business of doing new things: what follows is not a manual or a record of knowledge but an exercise in thinking. Because that is what a startup has to do: question received ideas and rethink business from scratch.

Ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.

There’s an enormous difference between perfect competition and monopoly, and most business are much closer to one extreme than we commonly realize. The confusion comes from a universal bias for describing market conditions in self-serving ways: both monopolists and competitors are incentivized to bend the truth…..Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets….Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competitions as much as possible.

Iteration without a bold plan won’t take you from 0 to 1.

We don’t live in a normal world; we live under a power law (distribution).

The most valuable kind of company maintains an openness to invention that is most characteristic of beginnings.

The most valuable business of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.  

Finally, there are far too many intriguing discussions in this book for me to quote them all. To me, this is one of those books of which I will flip through some pages after having new experience and re-think. The final words in the book would be a great parting message here:

Our task today is 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. The essential first step is to think for yourself. Only by seeing our 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.