Zero to One

4 February 2022

reading time:  minutes

I’m ambivalent about Peter Thiel.

He’s a thoughtful and articulate guy. I like many aspects of his book Zero to One.

I think we have a very different idea, however, of what a good society looks like, and what it would take to get us there. In other words, I disagree with much of his politics. Nor can I square the circle with his libertarian leanings versus the fact he founded Palantir.

Being ambivalent about someone isn’t necessarily a bad thing. I’m ambivalent about some of my closest friends. In fact, I’m ambivalent about myself sometimes.

Just because I’m not all-in on someone doesn’t mean that I can’t learn from them. Thiel has been successful (in his chosen domain) over and over:

  • He co-founded Paypal. He is unoffically considered the “don” of the “Paypal mafia” (which includes members such as Elon Musk, plus founders of other billion dollar companies such as LinkedIn and YouTube).
  • He founded Palintir, which has earned him over $1 billion.
  • He was the first outside investor in Facebook, buying a 10% stake in the company in 2004 for $500,000. (This $500,000 investment made him over $1 billion.)
  • Etc.

Someone like that surely has something to teach you.

I like many aspects of Zero to One, which was co-authored by Blake Masters.

I recently went through my notes from the book, and these are three of the big business lessons I got from it. (Emphasis is added.)

“Creating value is not enough – you also need to capture some of the value you create.Thiel includes a couple of examples:

  • “Compare [US airline companies, which “serve millions of passengers and create hundreds of billions of dollars of value each year”] to Google, which creates less value but captures far more.” Google made more than 100 times the profit of the entire US airline industry in 2012, and at the time of the book was “worth three times more than every US airline combined”.
  • “Compare the value of the New York Times Company with Twitter. Each employs a few thousand people, and each gives millions of people a way to get news. But when Twitter went public in 2013, it was valued at $24 billion—more than 12 times the Times’s market capitalization—even though the Times earned $133 million in 2012 while Twitter lost money.”

“[C]apitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away.”

  • “competition is an 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 it—even though the more we compete, the less we gain.”
  • “Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized, and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition.”

In business, it’s important to have a long-term focus:

  • “the value of a business today is the sum of all the money it will make in the future” [and not the money it will make in the next year or three]
  • “a great business is defined by its ability to generate cash flows in the future.”
  • “For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth.”

Invest productively

The title of Thiel’s book captures his key message. When you go from zero to one, you create something that didn’t previously exist.

The key is to invest productively.

One of the reasons I’m personally not interested in investing in real estate is that I think there are more productive ways to use capital. If you put money into buying a property and then renting it out, what value are you really adding to society – apart from liquidity to the person who previously built or owned the property?

To be fair, you can make a similar argument when investing in publicly listed companies. When you buy shares in a company, you’re buying those shares from somebody else. For the msot part, you’re not really introducing capital into the organisation in order to create goods and services that add value to other people. You’re just providing liquidity to the people you’re buying shares from.

It might be different if you’re building or renovating on a piece of land. Or you’re investing in a smaller business which will be using the funds you put in, to grow and service its customers.

This is also why I’m a big advocate for investing in yourself – in your human capital. All going well, this will increase your capabilities and your ability to add value to other people’s lives.

For most people, buying rentals or shares might be suitable – and might be the best thing to do. Investing in a new venture (or property development) can be a great way to turn a large fortune into a small one. If you’re likely to go from zero to zero, then it’s way better to go from one to one (or two or three).

But if you’re capable of investing some of your human and financial capital in a more entrepreneurial way?

There may be risks. But done right and done well, it can be where the real rewards can be.



Tags

business, entrepreneurship, investing, Peter Thiel, Thiel, zero to one


About the author 

Sonnie Bailey

Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or a popular author of erotic, supernatural, mystery novellas. Sometimes he says he was in a band that opened for Robbie Williams. None of these are true.

Other articles you may like:

Recessions, bear markets, and bananas
Every asset class has bad years, even bonds
The future is going to be wild
The 4% rule is a mind-killer
Investing in social capital
What are you hedging against?