“Zero to One”: A Guide to Building the Future

Peter Thiel’s Zero to One highlights the fundamental axiom of startup operation — building for tomorrow, today. Thiel breaks down progress toward the future into two disparate categories: horizontal progress and vertical progress.

Horizontal progress is defined as progress that emerges from the expansion of existing ideas and innovations — progress within a clearly defined paradigm. Globalization is a key driver of horizontal progress, spreading existing ideas around the world and increasing the total amount of individuals working to refine them.

Vertical progress, however, is the environment in which startups thrive. Vertical progress is defined as progress that occurs due to the creation of new technology or methodology, establishing new paradigms. The mass manufacture and global distribution of the telephone is an example of horizontal progress. The creation of the smartphone represents a paradigm shift — vertical progress.

Zero to One recommends startups avoid expanding on the status quo, and instead explore new innovative concepts by viewing the present critically.

Many startups make the mistake of attempting to plan for every possible eventuality. The future, however, holds far too many variables to plan for every possible outcome. Zero to One introduces the concept of taking ownership over the future of your startup — success is the product of regularity, dedication, determination, and focus, not luck.

Startups, according to Thiel, have only one path to success. Attaining success as a new startup means striking when the conditions for success are right. The primary concern for any startup should be identifying when and where to strike.

Monopolies are often viewed as harmful economic structures that inhibit competition and innovation. Competitive ecosystems are typically regarded as the ideal economic environment for stimulating innovation. Zero to One, however, argues the opposite — monopolies, according to Thiel, drive innovation.

Monopolies occur when an enterprise is doing so well that its competitors can’t compete. Zero to One highlights Google as the primary example of an innovation-driving monopoly, encouraging other businesses to create better search engine solutions and product suite alternatives.

Operating a monopoly is a condition of running a highly profitable business. A lack of competitors allows businesses to set their own prices, ensuring higher profits. Zero to One advises that startups identify and operate within an economic niche in which they are able to establish a monopoly.

Establishing a monopoly delivers a range of benefits to a business outside of the ability to set its own prices. A monopoly typically holds a technical advantage over competitors. This technical advantage makes it difficult for competitors to usurp the position of a monopoly within a market niche as the competitors of Windows in the 90s would easily attest.

Monopolies also benefit from network effects. The more useful a product is, the more users it will have, and visa versa. This reciprocal relationship between userbase size and functionality creates a market paradigm in which competitors are unable to capture the existing userbase of a monopoly.

Other benefits provided by monopolization include economies of scale and strong brand presence that can’t be easily supplanted.

The ever-evolving technological landscape leads many startups to believe that they can succeed through horizontal progress alone. The key to creating a truly successful startup in Australia, however, is developing proprietary or as-yet-undiscovered solutions that aren’t available to your competitors.

Contrary to conventional wisdom, there is plenty of room for vertical progress in the modern world. In order to prosper in the competitive Australian startup ecosystem, new startups must create solutions that their competitors aren’t aware of yet, and can’t copy.

Zero to One defines a monopoly as the ideal business model — but monopolies take time, determination, and effort to create. In many cases, it can take startups years to realise a profit. A new business or startup can’t expect to enter into a competitive market environment and establish itself as the dominant player right away.

A startup must operate in a narrow, clearly defined market and focus on becoming the dominant player in a specific niche. Only once domination of a specific niche is achieved can a startup move into the broader market. Amazon is a prime example of this strategy — originally focused on books only, Amazon is now the largest retailer in the world.

Every company in operation required a strong foundation in order to succeed in the long term. The earliest days of incorporation and launch are critical to any factor. Establishing a strong startup foundation relies on three factors:
1. Finding the Right People
   Startups are typically small organizations with very small team sizes. It’s essential that startup leaders closely assess the vision and skills of the individuals working with a startup in early stages.
2. Balancing Interests
   Founders, investors, and other startup participants often operate with competing interests. Boards of directors may demand immediate profits, creating friction with founders that prioritize the development of products. Conflict resolution and collaboration should be a priority for all startups from day one.
3. Establishing a Strong Company Culture
   Company culture is essential when building a close-knit team of startup team members. It’s important to note that company isn’t limited to the perks provided to employees — developing positive relationships between team members critical to the success of any startup.

No matter how innovative or paradigm-breaking your product is, your startup will need to sell the services or products it offers. Sales channels are essential to the success of all startups in Australia and abroad.

An effective startup sales strategy considers both sales channels and distribution. Creating an effective sales strategy means assessing the value of each individual sale and the amount of effort your startup is prepared to invest in it. High-value sales may justify the involvement of executive team members — low-value sales may not. Efficient sales strategies are effective sales strategies.

Zero to One presents the 2005 to 2009 clean technology investment bubble as a strong example of the consequences of poor market analysis. Over the duration of the cleantech bubble, over US$50 billion was invested in thousands of Silicon Valley cleantech startups — almost all of which failed.

Analysing the market opportunity presented to your startup is critical. Zero to One recommends startups answer the following seven questions in order to analyse the market they operate in:

1. Does your startup offer a technological breakthrough?
2. Is this the right time to launch your startup?
3. Will your startup launch with a large share of a small market?
4. Is your team capable of capitalizing on the opportunity your startup represents?
5. Are you capable of distributing your product?
6. Will you be able to defend your market position over the long term?
7. Does your startup target an opportunity that other businesses are unaware of?

The final key point delivered by Peter Thiel’s Zero to One is the importance of eccentricity. The founders of virtually all highly successful startups, notes Thiel, can be defined as slightly unusual individuals.

Eccentricity, states Zero to One, is a key market of originality. The eccentricity exhibited by successful startup founders lends drive and vision to the businesses they launch, establishing their startup as dominant forces in any market.