Book - Zero To One by Peter Thiel
What important truth do few people agree with you on?
Most people think the future of the world will be decided by globalization, but the truth is that technology matters more. Without technological change, if China doubles it’s energy production over the next two decades, it will also double it’s air pollution. If everyone of India’s hundreds of millions of households were to live the way Americans already do - using only today’s tools - the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation - not riches. In a world of scarce resources, globalization without technological is unsustainable.
Bob Dylan has said that he who is not busy being born is busy dying.
Great companies have secrets : specific reasons for success that other people do not see.
Being the first mover does not do you any good if someone else comes along and unseats you. It is much better to be the last mover - that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision. In this one particular at least, business is like chess. Grandmaster Jose Raul Capablanca put it well : to succeed, “you must study the endgame before everything else”.
Had I actually clerked on the Supreme Court, I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new. It is hard to say how much would be different, but the opportunity costs were enormous. All Rhodes Scholars had a great future in their past.
It was pets.com vs petstore.com vs petopia.com vs what seemed like dozens of others. Each company was obsessed with defeating its rivals, precisely because there were no substantive differences to focus on. Amid all the tactical questions - who could price chewy dog toys most aggressively? who could create the best Super Bowl ads? - these companies totally lost sight of the wider question of whether the online pet supply market was the right place to be in. Winning is better than losing, but everybody loses when the war isn’t one worth fighting.
Sometimes you have to fight. Where that is true, you should fight and win. There is no middleground : either do not throw any punches, or strike hard and end it quickly. This advice can be hard to follow because pride and honor can get in the way. Hence Hamlet :
“Exposing what is mortal and unsure To all that fortune, death, and danger dare,
Even for an eggshell.
Rightly to be great Is not to stir without great argument,
But greatly to find quarrel in a straw When honor’s at the stake.”
For Hamlet, greatness means willingness to fight for reasons as thin as an eggshell: anyone would fight for things that matter; true heroes take their personal honor so seriously they will fight for things that do not matter. This twisted logic is part of human nature, but it is disastrous in business. If you can recognise competition as a destructive force instead of a sign of value, you are already more sane than most.
- Escaping competition will give you a monopoly, but even a monopoly is only a great business if it can endure in the future. Compare the value of the New York Times Company with Twitter. Each employs a few thousand people, and each gives millions of people a way to get news. But when Twitter went public in 2013, it was valued at $24 billion - more than 12 times the Time’s market capitalization - even though the Times earned $133 million in 2012 while Twitter lost money. What explains the huge premium for Twitter?
- The answer is cash flow. This sounds bizarre at first, since the Times was profitable while Twitter was not. But a great business is defined by its ability to generate cash flows in the future. Investors expect Twitter will be able to capture monopoly profits over the next decade, while newspapers’ monopoly days are over.
- Simpley stated, the value of a business today is the sum of all the money it will make in the future. To properly value a business, you also have to discount those future cash flows to their present worth, since a given amount of money today is worth more than the same amount in the future.
- It is true that already successful people have an easier time doing new things, whether due to their networks, wealth, or experience. But perhaps we have become too quick to dismiss anyone who claims to have succeeded according to plan.
- Is there a way to settle this debate objectively? Unfortunately not, because companies are not experiments. To get a scientific answer about Facebook, for example, we would have to rewind to 2004, create 1000 copies of the world, and start Facebook in each copy to see how many times it would succeed. But that experiment is impossible. Every company starts in unique circumstances, and every company starts only once. Statistics does not work when the sample size is one.
- From the Renaissance and the Enlightenment to the mid 20th century, luck was something to be mastered, dominated, and controlled : everyone agreed that you should do what you could, not focus on what you could not. Ralph Waldo Emerson captured this ethos when he wrote : “Shallow men believe in luck believe in circumstances. Strong men believe in cause and effect”. In 1912, after he became the first explorer to reach the South Pole, Roald Amundsen wrote : “Victory awaits him who has everything in order - luck, people call it”. No one pretended that misfortune did not exist, but prior generations believed in making their own luck by working hard.
- If you believe your life is mainly a matter of chance, why read this book? Learning about start-ups is worthless if you are just reading stories about people who won the lottery.
- Did Bill Gates simple win the intelligence lottery? Was Sheryl Sandberg born with a silver spoon, or did she lean in? When we debate historical questions like these, luck is in the past tense. Far more important are questions about the future : is it a matter of chance or design?
- Can you control the future? You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you will give up on trying to master it.
- Indefinite attitudes to the future explain what is most dysfunctional in our world today. Process trumps substance : when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options.
Definite optimism vs Indefinite optimism
Indefinite optimism : having an optimistic view about the future but not doing anything to make it happen. Nothing will come out of this view.
Definite optimism : Planning things and working towards them and keep working hard until those things are realized.