January 16, 2018

Peter Thiel's From Zero to One book review

Starting a global user experience platform like Ferpection is quite like exploring uncharted territories and that is why we were quite excited at the idea of reading "zero to one" by Peter Thiel.

Not that no one is running user experience business but definitely few are trying to take advantage of information possibilities offered by data and mobile landscape. This book is about starting from scratch and getting to "1" as in the first important step after creation. We have no idea if we'll manage to get Ferpection from "zero to one" but we certainly are curious about advices from someone who successfully co-founded Paypal and Palantir among other business. Thiel's law states "a startup messed up at its foundation cannot be fixed." Well we don't want that for Ferpection and so we kept 5 key ideas from his book:

1. Monopoly, that is creative monopoly, is the ultimate form of capitalism.

Competition can only lead to zero profit and makes every actor replacable by one another (think of a street with only Chinese restaurants).
There are four characteristics of these creative monopoly:
  • proprietary technology, makes your product difficult or impossible to replicate like Google's search engine. As a rule of thumb, it must be at least 10 times better than its closest substitute in some important dimension.
  • network effects. They make a product more useful as more people use it (think Facebook). Paradoxically, network effects business must start with small markets.
  • economies of scale. It gets stronger as it gets bigger.
  • branding. Powerful but requires strong underlying substance to build from.
Airbnb or Uber are typical examples of these.

2. There are still secrets which you can unveil to create a monopoly.

These secrets can be hidden by things we believe true today but are in fact inhereted from past events. For example, grand visions in Internet startup inflated the bubble that led to 2000 financial crash. This is why it is believed that small incremental steps are the only safe way forward in creating new business.
That's definitely not the path that took airbnb. They saw tons of supply where others saw nothing at all and they simply disrupted the hotel business.
Peter Thiel tells us that a good place to start looking for secrets is to think about what's forbidden or taboo, either in nature or about people.

3. To create a monopoly, start small.

So yes you want to disrupt but you still need to start small. Simply because it's simpler to dominate a small market. Gain a big share of a niche market which you can build your kingdom from.
Paypal dominated the niche of ebay buyers and extended from there (initially they dominated the niche of PalmPilot payments which meant having no customers since there was no usage).
Then you can scale up. Think of Amazon starting with books, then expanding to similar markets like cd, dvd and eventually selling practically everything.

4. Nerds vs salesman

The Valley is filled with stories of successful engineers building products that everybody want. Thiel warns that these stories simply ignore to tell us the key role of sales in each of them. OK, so you need to focus on sales and distribution of your product.
In more concrete ways, you want to make sure your customer lifetime value (CLV) is higher than your customer acquisition costs (CAC). Depending on the typical price for your product, you can look at different distribution channels:
  • Viral marketing.
  • Marketing.
  • Sales.
  • Complex sales.
One of the key advice from Peter Thiel is to focus on one you can excel at: viral marketing (box), marketing and advertising (P&G), sales (ZocDoc), complex sales (Space X).

5. Man and machine hand in hand

Machines are usuall blamed for our growing unemployement. Peter Thiel attributes this to globalization and sees mostly technology as complementarity. His theory is that humans won't be able to create value alone and the same is true about machines.
He believes humans and machines will create most value when working together. He takes an example from Paypal. Just after the dotcom crash, Paypal was growing fast and facing each month the loss of $10 millions to credit card fraud. The engineers initially devised an automatic response but each time the fraudsters would adapt. That is when they decided to take a hybrid approach. The algorithm would flag the most suspicious transactions and human analysts would make the final judgement working on lightspeed interface. This helped Paypal's team significantly reduce fraud and generate profit for the first time in their existence.

In conclusion, a great way to use Peter Thiel's From zero to one is to answer these 7 questions about your business:
  1. Engineering: can you create breakthrough technology instead of incremental improvements?
  2. Timing: is now the right time to start your particular business?
  3. Monopoly: are you starting with a big share of a small market?
  4. People: do you have the right team?
  5. Distribution: do you have a way to deliver your product?
  6. Durability: will your market position be defensible in 10 or 20 years? (You can think of what the endgame market might look like to answer this one)
  7. Secret: have you identified a unique opportunity that others don't see?

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Thibault Geenen

Thibault Geenen

Thibault est fan de la méthode lean start-up d'Eric Ries (qu'il applique avec beaucoup de sérieux) et faire des blagues que ses jeunes protégés ne comprennent pas toujours. Grand amateur de Science Fiction, il a récemment écrit un article faisant un lien entre entreprenariat et le film 'Seul sur Mars'.