Read 01.03.17

"Of course, it's easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange." 

Before encountering this book, I saw progress as something horizontal. Something better than the last— an improvement. Thiel proposes another perspective. Technological progress is vertical. To create something from nothing, an elevation of some sort. From 0 to 1. 

But apart from his philosophical insight, Thiel offers some great analysis. Take his interpretation of Monopolists and Non-monopolists in the real world.

"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 markets as the union of several large markets."

To follow through, he also states:

 

"Monopoly is the condition of every successful business."

 

"All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition." 

 

 

Is he right? I'd argue he is. Remember the time in Intro Econ you were learning about perfect competition and wondering why any firm would want to stay in PC? You weren't wrong. In the world we live in, there is incentive to differentiate. 

 

"More than anything else, competition is an ideology— the ideology— that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within— even though the more we compete, the less we gain."

 

"Our educational system both drives and reflects our obsession with competition. Grades themselves allow precise measurement of each student's competitiveness; pupils with the highest marks receive status and credentials. We teach every young person the same subjects in mostly the same ways, irrespective of individual talents and preferences. Students who don't learn best by sitting still at a desk are made to feel somehow inferior, while children who excel on conventional measures like tests and assignments end up defining their identities in terms of this weirdly contrived academic parallel reality."

 

But moving beyond all that, my goal for picking this book was to learn more about start-ups. There was a lot to digest. From determining value to proper marketing schemes, Thiel uses his own experience to tell a story of both successes and failures with complimentary interpretations of economic trends throughout his journey. On a side note, I believe I enjoyed this book even more so as someone trying to create a startup myself. Had I been reading it under different circumstances, his recommendations may seem obvious (believe me they're not). Regardless, I want to recommend this book to anyone who wishes to embark on their own startup-journey. As usual, here are some of my favorites parts below:

 

"In middle school, we're encouraged to start hoarding "extracurricular activities." In high school, ambitious students compete even harder to appear omnicompetent. By the time a student gets to college, he's spent a decade curating a bewilderingly diverse résumé to prepare for a completely unknowable future. Come what may, he's ready— for nothing in particular."

 

 

"When Americans see  the Chinese economy grow ferociously fast (10% per year since 2000), we imagine a confident country mastering its future. But that's because Americans are still optimists, and we project our optimism onto China. From China's viewpoint, economic growth cannot come fast enough. Every other country is afraid that China is going to take over the world; China is the only country afraid it wont."

 

 

"Finance epitomizes indefinite thinking because it's the only way to make money when you have no idea how to create wealth. If they don't go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers. And once they arrive at Goldman, they find that even inside finance, everything is indefinite. It's still optimistic— you wouldn't play in the markets if you expected to lose— but the fundamental tenet is that the market is random; you can't know anything specific or substantive; diversification becomes supremely important.

The indefiniteness of finance can be bizarre. Think about what happens when successful entrepreneurs sell their company. What do they do with they money? In a financialized world, it unfolds like this:

1. The founders don't know what to do with it, so they give it to a large bank. 
2. The bankers don't know what to do with it, so they diversify by spreading it across a portfolio of institutional investors.
3. Institutional investors don't know what to do with their managed capital, so they diversify by amassing a portfolio of stocks. 
4. Companies try to increase their share price by generating free cash flows. If they do, they issue dividends or buy back shares and the cycle repeats. 

At no point does anyone in the chain know what to do with the money in the real economy. But in an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possible do with it."

 

 

"Every university believes in "excellence," and hundred-page course catalogs arranged alphabetically according to arbitrary departments of knowledge seem designed to reassure you that "it doesn't matter what you do, as long as you do it well." That is completely false. It does matter what you do. You should focus relentlessly on something you're good at doing, but before that you must think hard about whether it will be valuable in the future." 

 

 

"The best entrepreneurs know this: every great business is built around a secret that's hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator."

 

 

"It's easy to resist the most obvious sales pitches, so we entertain a false confidence in our own independence of mind. But advertising doesn't exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can't acknowledge its likely effect on himself is doubly deceived."

 

 

"Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution— whether they're in sales, marketing, or advertising— has a job title that has nothing to do with those things. People who sell advertising are called "account executives." People who sell customers work in "business development." People who sell companies are "investment bankers." And people who sell themselves are called "politicians." There's a reason for these re-descriptions: none of us wants to be reminded when we're being sold."

 

 

"If you've invented something new but you haven't invented an effective way to sell it, you have a bad business— no matter how good the product." 

 

 

"The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment— so be careful."

 

 

"Our task today is to find singular ways to create the new things that will make the future no 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."