Zero to One, by Peter Thiel

Dec 15, 2014
miltons ip

Zero to One by Peter Thiel.

Peter Thiel was one of the co-founders of PayPal (along with a ridiculous number of other very successful folks including Elon Musk of Telsa and SpaceX fame, and Reid Hoffman of LinkedIn). Much of his early ranting was of the ‘libertarian loonie’ variety (everything would be better if there were no government), which is a sentiment I think only someone who is rich, young and utterly devoid of empathy and introspection can truly ascribe to. However, perhaps with age comes wisdom, because this is an excellent little book. It is short, pithy, and insightful. I strongly recommend it.

Most books on entrepreneurship and technology start ups are not worth the paper they are written on. This one is worth paying for the hardcover version.

Two thoughts in the book stand out. The first is that when there is perfect competition, marginal profit is zero. As an entrepreneur you must look for a niche where there is less than perfect competition, and thus try to capture some form of ‘monopoly’ profit. I have made this mistake myself several times – looking a large markets with large numbers of incumbents and assuming that I because we had a better offering, we would grow quickly. Instead, I should have understood from the level of competition that marginal profits for the incumbents were low – and that this should be a clear warning to me to ensure that I had something radically different and better to have strong margins. Something that is just a bit better will not have the margins to support the sustained and expensive effort of building market share.

The second, and related, point, is that you should start by trying to dominate a modest niche – and after you have done that successfully, you should find an adjacent niche and dominate it. This is a very apt point, and in direct conflict with the usual “advice” that you should target a massive total addressable market from the get go. It is, in fact, in direct conflict with the usual VC metric of looking for a company that from the get go can scale to be “a $100M business in a $1B space”. Of course, it helps if there are obvious adjacent niches that you can transition into readily after your first success – but that is a far cry from the target being one large market.

When you put the two together, a good start up will be very focused on a small identifiable niche and will have very strong margins early on, and thus will rapidly start generating cashflow from which to fund its growth.

Happy reading.

Neil

1 Comment. Leave new

Right on Neil. Focus, focus, focus…. or as my marketing prof used to say – the three most important things in marketing are segmentation, segmentation and segmentation.

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