A book based on Peter Thiel’s lectures. There was a great deal I found hard to agree with, which made it a thought-provoking read. (When a book makes me uncomfortable, I find myself asking why.)

Unfortunately, the overall structure is rather loose, and the further it goes, the more it feels like a collection of blog posts. The content is also thin relative to the author’s reputation, and I often felt that obvious points were being dressed up in exaggerated rhetoric as profound insights.

Perhaps he has little talent for writing, or did not spend enough time on it.

Create something that did not exist: monopoly is good, competition is bad

Briefly, the book argues:

Create something new (0 to 1), rather than expanding what already exists (1 to n).
That is how to build a monopoly and make a great deal of money; only by making a great deal of money can you greatly benefit the world.

Creating something new apparently means making something at least ten times better than what exists. Google’s search engine is ten times better than Yahoo’s; Apple’s products are ten times better than their predecessors.

“Ten times” is just a figure of speech. Read it as “make something sufficiently good.” Ultimately, “zero to one” means “sufficiently good.”

The author says we should make a great deal of money through monopoly. But by monopoly, he does not mean deliberately blocking competition or colluding with government to prevent other businesses from entering. He simply means being so outstanding in one’s field that other companies cannot compete. In other words, this means the same thing as making something ten times better.

“Create something that did not exist. Monopoly is good and competition is bad” sounds startlingly radical. But when I examine it carefully while asking what I should actually do in my business, it amounts to the utterly obvious claim that “making something sufficiently good earns lots of money; failing to do so leaves you struggling in fierce competition without making money.”

An actual sentence from the book:

If you want to create and capture lasting value, don’t build on an undifferentiated commodity business.

Lessons from the dot-com bubble

Chapter 2, “Party Like It’s 1999,” discusses the dot-com bubble of the late 1990s and early 2000s: how PayPal operated during it and what lessons it learned.

The first half critically describes the absurd startups and indiscriminate investment of the time. Meanwhile, PayPal, which he founded, supposedly had a “sensible” revenue model:

Attract users by giving them $10 for signing up and another $10 every time they invite someone.
Once enough users have joined, start making money from transaction fees.

Others, crazed by the dot-com bubble, attracted investment with irrational business models; his company succeeded because it had a rational plan: “But we thought our huge costs were sane: given a large user base, PayPal had a clear path to profitability by taking a small fee on customers’ transactions.”

But is that really so?

Anyone can devise a business model that says “With enough users, we can do X.” Isn’t the issue having a rational plan to attract those users in the first place? And that rational plan is “We’ll give you $10 to sign up, and more if you invite someone”? Even if spending enormous sums attracts enough users, there is no guarantee that such an artificially acquired, inorganic user base will actively use the service. Usually most become inactive.

If there were other reasons PayPal was likely to succeed, I wish he had discussed them more.

Moreover, he seems to have known that this plan differed little from other dot-coms at the time:

We knew we’d need more funding to reach that goal. We also knew that the boom was going to end. Since we didn’t expect investors’ faith in our mission to survive the coming crash, we moved fast to raise funds while we could. On February 16, 2000, the Wall Street Journal ran a story lauding our viral growth and suggesting that PayPal was worth $500 m i l l i o n . W h e n w e r a i s e$ 100 million the next month, our lead investor took the Journal’s back-of-the-envelope valuation as authoritative. (Other investors were in even more of a hurry. A South Korean firm wired us $5 million without first negotiating a deal or signing any documents. When I tried to return the money, they wouldn’t tell me where to send it.) That March 2000 financing round bought us the time we needed to make PayPal a success. Just as we closed the deal, the bubble popped.

In short, implementing that user-acquisition plan required a great deal of money, and the bubble looked ready to burst, making fundraising urgent. Luckily, the WSJ valued PayPal at a whopping $500 million; luckily again, indiscriminate investors accepted its back-of-the-envelope valuation at face value. The boast is that this let him pull in investment.

It is not a bad story for a businessman to brag about over drinks: “Here’s how we made money—woohoo!” But I do not consider it a lesson to offer aspiring entrepreneurs, especially young students (the book is based on Stanford lectures).

Then, abruptly, he criticizes agile/lean approaches. His alternatives:

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.

Point 1 assumes that “incremental improvement” cannot achieve great things. Naturally, I think that assumption is wrong. (I l-l-love… well, like evolutionary theory.)

Point 2 stems from this misunderstanding:

Stay lean and flexible. All companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.

“Lean” apparently means “unplanned,” blindly repeating experiments like the blind men feeling an elephant. But the lean/agile approach is that planning is so important it should happen continuously, rather than once; it is not an absence of planning. I suspect the author has misunderstood it badly.

I agree with 3 and 4. Aren’t they, in fact, too obvious to disagree with?

To elaborate on 4: both matter, but making a good product matters more. Selling a lousy product may earn money, but it harms customers and requires self-deception along the way. Advertising a doomed product to make it temporarily look successful harms customers and wastes your own time and money. You fail slowly instead of quickly. Failing quickly lets you learn quickly and try again. Life is not a single round, and neither is entrepreneurship. It is simply an iteration on a somewhat larger scale. Game theory says effective strategies differ between repeated and one-shot games. Many people believe entrepreneurship is a one-shot game and act accordingly, but that is not the optimal strategy.

To be clear, I favor agile approaches, so I do not believe sales or advertising must wait until a product is complete. Build a little, sell a little accordingly, and use that momentum to improve a little more, repeatedly.

Monopoly, competition, innovation

Chapter 3, “All Happy Companies are Different,” praises monopoly; chapter 4, “The Ideology of Competition,” criticizes competition.

Put that way, the author sounds like a terrible person. But consider how he defines “monopoly,” and it is less objectionable. As noted earlier, “become a monopoly” merely means “make something ten times better than everyone else.”

Competition is bad, he says, because it reduces profits, making life harsh. He gives the example of a restaurateur who competed too fiercely with other restaurants, lost stars in “Michelin’s star system,” and eventually killed himself.

Monopoly, by contrast, is good: Google’s large monopoly profits improve employees’ lives, allow continual product improvement, and thus enable more positive influence on the world.

By his definition, monopoly can hardly be anything but good: it simply means a company that is outstanding yet always innovates, never unfairly avoids competition or forms illegal ties with government, and just does its job extremely well. Only creative monopolies can change the world, because they have money and the breathing room to prepare innovations.

What is maddening is that he describes Apple, a creative monopoly, defeating Microsoft and improving the world through the innovation of iOS, yet says nothing about what Microsoft did while enjoying its entrenched monopoly (what about Internet Explorer, in particular?). And then he claims history shows that monopoly companies drive progress.

Isn’t the correlation between innovation and monopoly obvious, given that sufficient innovation brings a temporary monopoly? More precisely, “Only by becoming a monopoly can you innovate” gets the order wrong. Isn’t “Innovation enabled the company to become a monopoly” the more natural causal account?

The stylish but unhelpful sentences keep coming. For example:

Sometimes you do have to fight. Where that’s true, you should fight and win. There is no middle ground. Either don’t throw any punches, or strike hard and end it quickly.

A decent line for a Hogwarts teacher to say to Harry Potter. But what about reality? Situations do not begin with “We’re starting now, so decide whether to fight.” More often, like getting soaked in a fine drizzle, you look up and realize you are already competing. (As the book mentions, PayPal itself competed early on with Elon Musk’s X.com.)

Chapter 5 warns against losing long-term value through excessive focus on short-term metrics such as monthly active users (MAU), as in Zynga’s case. I strongly agree.

Success and luck

In chapter 6, “You are not a Lottery Ticket,” he explains his view of success and luck. (This is where it increasingly begins to feel like a collection of blog posts.)

He argues that it is impossible to quantify the role of luck in business success, for this reason:

Every company starts in unique circumstances, and every company starts only once. Statistics doesn’t work when the sample size is one.

Since quantitative evaluation is impossible for that reason (…), he argues that we might as well hold a positive belief.

There is also this logic:

If you believe your life is mainly a matter of chance, why read this book?

I believe life is mainly a matter of luck, yet I am reading it. Even if luck determines 99% of my life, I think I should study and work hard to do my best in the 1% I can influence.

Anyway, he distinguishes two attitudes toward the future:

Those who believe we cannot control it (indefinite future).
Those who believe we can (definite future).

Each is subdivided into optimism and pessimism. His main claim is that Europe has stagnated, China trembles in fear, and only American tech startups move forward believing in a positive future. Apparently, even among tech startups, nonsoftware companies do not count. Biotech startups, for example:

Biotech startups are an extreme example of indefinite thinking. Researchers experiment with things that just might work instead of refining definite theories about how the body’s systems operate. Biologists say they need to work this way because the underlying biology is hard.

I am no expert, but from acquaintances who study biology and things I picked up during several years at a bioinformatics company, some aspects of biology/bioinformatics/physiology/medicine do seem to use that approach. Before boldly saying such things, though, shouldn’t he consider what technologies are used at Palantir Technologies, the AI company he heads? Does he even know how many algorithms in artificial intelligence and machine learning operate in precisely that way?

According to him, if one can know the future, there is no need for lean startups’ minimum viable products (MVPs):

Forget “minimum viable products” - ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ success.

True. The problem is that we have no Steve Jobs at our company. If every company had one, nothing else would be needed; we could simply do what he said. An entrepreneur who has already succeeded, or an investor in many startups, may be able to go around saying this, but how realistic is the advice for people actually running a business now?

If these really are the lessons he learned from all the startups he invested in or worked with, his self-assessment is seriously distorted. Does he not see Google’s many failures (hello, orkut? hello, Wave?)? Wasn’t the PayPal he founded originally a silly service that let PalmPilot users transfer money when they gathered in one place?

Many examples in this book work this way: he describes only the aspects supporting his claim and moves on. With so many startups and services in the world, what claim couldn’t you make if you mentioned only convenient examples?

Founders should be poor; everyone should work together in one place

Chapters 9 and 10 address founding, hiring, and cultivating culture.

On founding, his advice is… you begin only once, and if you begin badly you cannot succeed, so do it well. Of course doing anything well is desirable, but without strong evidence I generally do not believe in “once-in-a-lifetime, irreversible decisions.”

He also recommends that employees work full-time in one place:

As a general rule, everyone you involve with your company should be involved full-time…. Part-time employees don’t work. Even working remotely should be avoided, because misalignment can creep in whenever colleagues aren’t together full-time, in the sample place, every day.

I agree with the intention. Especially early on, members need to share and align their thinking frequently. To work remotely, I think we need to devise effective ways of compensating for the problems he identifies.

Next, he advises founders against taking too high a salary:

A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.

There is something to this. But since unscrupulous Korean VCs could misuse it, let me add that “poor” here means an annual salary no higher than $150,000 (roughly 200 million won).

On equity, he advises keeping it secret where possible:

Since it’s impossible to achieve perfect fairness when distributing ownership, founders would do well to keep the details secret.

I do not agree with this advice at present, but I have not thought it through sufficiently and need to consider it more.

Next is the advice to make each person’s role clear:

The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing…. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism.

Clarify roles so each person focuses on one thing. I am doing the exact opposite. Even at the cost of immediate efficiency, I try to maximize the overlap among people as they work. If conflicts are going to happen, better that they happen early and often.

Closing thoughts

Throughout the book, I could not stop thinking about this passage from a paper I read a few years ago:

Although true skill cannot develop in irregular or unpredictable environments, individuals will sometimes make judgments and decisions that are successful by chance. These “lucky” individuals will be susceptible to an illusion of skill and to overconfidence.

—Conditions for intuitive expertise: A failure to disagree

He must certainly be an exceptionally capable person. I do not think someone with no strengths could repeatedly succeed in business through luck alone.

Still, when you live intensely, immersed in an environment where success breeds success and money breeds money, and experience repeated, outsized successes, finding time to reflect on your life must be difficult. All the more so for someone exceptionally capable.

That is my greatest realization from reading this book. I should live in continual self-questioning and reflection.

For the record, I have great faith in what our company is trying to do. It will create great value and change the world positively. So far, that sounds similar to the author’s view.

But I have little faith that our company will accomplish it. I think we are likely to fail within three years.

What does that mean? Why run a business, then? Let me explain.

We are trying to do something the world truly needs. If we do it well, the world will improve and we will make money. But I am not confident we can do it well. Even if we cannot, someone must do it, and someday someone will.

My uncertainty is simple: most startups fail. They all bring together people who are impressive in their own ways and begin with enthusiasm and hard work, yet most fail. It is therefore rational to assume I will fail too.

What I do believe is 1) although failure is more likely than success, our probability of failure may be slightly lower than the startup average; 2) if we fail, we can learn as much as possible and create at least a little value along the way; and 3) the next attempt will have a slightly lower chance of failure.

I believe luck plays a large role in business success. But if even 1% is within my control, I think making an effort is reasonable.

I believe this is more realistic and useful than Peter Thiel’s simple dichotomy: “If you think the future is luck, do nothing; if you believe we can determine it, stake your life on something big.”