Book Review: Peter Thiel’s “Zero to One”



This is a partial review of Peter Thiel’s best-selling book about creating a start-up. It is partial because I focus more on the things I did not like, leaving the praise to all his followers.

I’m currently visiting the U.S., with my family. Because of potentially lengthy ESTA controls, we were much too early at the airport. So I had enough time to browse the bookstore. By chance, I came across Peter Thiel’s “Zero to One”, with its catchy sub-title “Notes on Startups, or How to Build the Future”.

‘Building the future, that’s for me,’ I thought, and bought it. And it was! Eight hours later, just before landing at JFK, I was already through it. But, as Nassim Taleb says on the back cover:

When a risk taker writes a book, read it. In the case of Peter Thiel, read it twice. Or, to be on the safe side, three times. This is a classic.

So, this may be only the first time I read it! Here’s why.

Peter Thiel is best known as the co-founder of Paypal. He has also successfully founded and invested into other companies, so he most certainly knows what he’s talking about. I do not agree with all of his statements and positions, though. So if this post may seem too critical or negative, let me state here once and for all: I enjoyed this read very much, it was fresh, intellectually stimulating, and very authentic. Having said this, there are some points I did not like about the book. But to get there, let me quickly summarize the main topics.

Zero to One is a book about startups, technology, and the future of humanity. In that order, which is striking, because for him there seems to be no hierarchy in these. On the contrary, he seems to suggest that they are, if not synonyms, then at least tightly causality-linked phenomenons: Problems of humanity can be solved with technology (only), and technology can be invented by startups (only). Fair enough, I was never even close to saving humanity with any of the start-ups I co-founded or advised. But then again: has he? More than me, sure. But, really really?

Thiel on Economics I: Efficient Markets

Thiel talks about the dot com bubble as an example demonstrating that markets are not efficient.

I’m an economist by training, and I couldn’t agree more with him on the fact that economics as a subject sucks. Efficient markets are nice to model, but whoever has invested into stocks in the dot-com bubble will agree that financial markets are not efficient per se. Thiel presents this like a novelty, but already Keynes (whom Thiel probably doesn’t like) said, way before 1999, that

Markets can stay irrational much longer than you can afford it.

So, instead of arguing for and against economics, it may have been enough to just state that valuations of a startup may or may not be exaggerated, as there is always a lot of judgement flowing into the valuation of a company.

However, when he explains high valuations of tech companies, say LinkedIn, he naively explains them with future cash flows, stating that:

You might look at these numbers and conclude that investors have gone insane. But this valuation makes sense when you consider LinkedIn’s projected future cash flows.

This is not wrong. However, what he does not mention is that we would have to adjust the future cash flows by the probabilities that they are realized. And there is lots of personal judgement in these numbers. So it’s still possible that there is a quite a bit of insanity in these numbers.

Thiel on Economics II: Monopolies

Thiel states that monopolies are good. Not only for the monopolist (for whom they obviously are), but also for society as a whole. Without monopolies, pharmaceuticals wouldn’t invest into drug research, startups wouldn’t take the high risk they are taking (personal risk in the case of the founders, financial for the angel investors), etc.

Thiel is right. But, again, this is not an original thought. Not even economics 101 teaches that perfect competition is always good for society, while monopolies are always bad. There are externalities, etc. This is why competition policies try to gauge benefits of a monopoly against costs on society. Countries attribute patents and allow for dominant positions of companies under certain conditions. Whether policy makers always do a good job is another question, of course, though one that is very difficult to answer, even after the fact, let alone ex ante.

So, instead of ranting about economics and policy makers, it would have been enough to state that the goal of each startup should be to reach a monopoly-like position, and to maintain it as long as possible. Put that way, the argument becomes suddenly trivial.

Indefinitely Pessimistic

According to Thiel, I’m an indefinite pessimistic person. I live in Europe, and I even enjoy travelling. According to him, Europeans are slackers and victims of what he calls vacation mania, whatever that is.

Likewise, he mentions China as an example for a definite pessimistic country, which is rather counter-intuitive to most.

There are a few things that strike me about this. Firstly, having German roots, Thiel should know better than to generalize and over-simplify.  London is not equal to Athens, and a Chinese factory worker probably sees the future very differently from a party official. Obviously, the same is true for the United States. Differences between Arkansas and the Valley are immense. Differences among individuals even more.

For example, we are currently staying in a place in New York that belongs to a girl that is has traveled to more than 60 countries. Does that make her a slacker? Most certainly not. Paying an apartment in Upper West Side and travelling the world many weeks per year probably requires hard work and lots of dedication. Suggesting that this is un-American seems ridiculous to me.

In short, according to me, it would have been smarter to argue like this:

People are different. Some differences are socio-cultural, some are personal, and some are coincidental. If you want to build a game-changing start-up, you need to be a risk-taker. You want to be in places where it’s likely that you meet other people with the same attitude (co-founders, VCs, etc.). Depending on your background and the type of company you want to build, that place could be the Silicon Valley, London, Berlin, Mombasa, or Singapore.

Coincidence?

Thiel claims that successful entrepreneurs are often serial entrepreneurs. That’s probably not completely wrong. But it’s not that easy either. Otherwise, running a VC fund would be a no-brainer, which it is not. My personal opinion is that it’s about 50 / 50: It takes more than taste for risk to become a successful entrepreneur. But it also takes a good portion of luck.

Thiel on Lean Startups

When I first heard about the Lean Startup methodology, it stroke me as the missing piece. Reading Thiel’s statement against it was shocking at first, but refreshing after the second read. He claims that we should strive for the big thing and for game changers, not for incremental improvements.

I’m not sure, but there might be a misunderstanding. What helped me a lot when applying the lean startup methodology was the going-to-market-early spirit. As many techies, I’m a perfectionist, and following a methodology that told me to go to market early proved often very helpful. That didn’t mean we never tried to provide a product or service that was radically different from anything we knew at the time. But there’s one million different ways to do something different, so picking one is not easy. Letting the early adapters help does not sound like a bad idea.

Takeaways I did like

To give this post a positive spin, there are things I liked. For example, they idea that big corporations (and society as a whole) waste human capital by making employees compete for career moves.

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