Contrarian Thinking for Startups – Recap of Peter Thiel’s “Zero to One”
I recently finished reading Peter Thiel’s book, Zero to One: Notes on Startups, or How to Build the Future, and it’s a must-read for anyone working on a startup or any product in general.
Peter Thiel was the founder of PayPal, co-founder of Palantir, an early investor in Facebook, and runs Founders Fund, an early-stage venture capital firm. Needless to say, the dude knows his stuff about startups.
His viewpoint is quite contrarian to mainstream thinking, which is a big factor why he is so successful. Some interesting questions and points that Peter makes in his book include:
- What important truth do very few people agree with you on?
- What valuable business is nobody building?
- Competition should be avoided.
Let’s dig into each of these a bit more.
What important truth do very few people agree with you on?
The most contrarian question of all is likely the hardest to answer. The point isn’t to purposely think the opposite of what the crowd thinks; rather, it’s to understand how you can think for yourself and be different than everyone else.
I think Pandora is a great example of this. Back in the early-to-mid 2000s, iPods and MP3 players were ubiquitous and Apple was reinventing music with iTunes. Who would have thought then that people wanted to just listen to music streamed to your computer that some algorithm selected?
What valuable business is nobody building?
This is the business version of the first question. If you can answer question #1 and build a valuable business out of it, you’re going to be successful.
The key word Thiel highlights here is “valuable.” In order to build a valuable business, you need to both provide and capture value.
Let’s go back to the Pandora example. While the company certainly created value for its users, whether it could capture any value was in doubt for a long time. High music royalty fees nearly toppled the company, but Pandora was able to strike deals to pay musicians fairly and sell enough advertising to capture value. It’s now a thriving public business, pulling in over $239 million in revenue in the 3rd quarter of 2014.
Competition should be avoided.
This tenet is directly related to a business’ ability to capture value.
Thiel compares the airline and search industries to make his point. Airlines, like United and American, provide a lot of value (they move many people from place to place) but captures very little (they make a paltry margin, if any). Google, on the other hand, creates much less value but captures much more (it’s worth 3x more than all the airlines combined). And the reason for that is that they’ve basically achieved a monopoly in search.
For startups, competition sometimes is considered to be a good thing, as it sort of validates your concept and shows that the customer demand for your product is high enough for other companies to want to build it.
Apparently, Thiel is thinking contrarily again.
If you found this recap interesting, you’ll certainly want to pick up the book and read it entirely. For anyone interested in products, startups, or just a different way of looking at things, it’s an easy and interesting read.