Zero to One: Notes

Several interesting ideas and perspectives, though few groundbreaking. The book is more a collection of notes and ideas than a book with a clear structure and flow. Not longer than it needs to be, and worth reading.

Summary & thoughts

Several interesting ideas and perspectives, though few groundbreaking. The book is more a collection of notes and ideas than a book with a clear structure and flow. Not longer than it needs to be, and worth reading.

Build a monopoly

Thiel advocates the importance of building for a monopoly, not going head-first into a big market with lots of competitors. Only by building a monopoly business will the company be able to reap strong profitability and create lasting businesses. To achieve this, he advices to start by taking an dominant position in a niche market before scaling to adjacent markets:

“Amazon shows how it can be done. Jeff Bezos’s founding vision was to dominate all of online retail, but he very deliberately started with books. There were millions of books to catalog, but they all had roughly the same shape, they were easy to ship, and some of the most rarely sold books – those least profitable for any retail store to keep in stock – also drew the most enthusiastic customers. Amazon became the dominant solution for anyone located far from a bookstore or seeking something unusual”.

Same goes with Tesla, that did not start of by trying to dominate the entire market for electric cars, but identified a gap in the segment for luxury electric sports cars.

Burned by bubbles

Writes about how different bubbles have affected the mind set of future entrepreneurs, for example from the dot com crash and green-tech. “Would-be entrepreneurs are told that nothing can be known in advance: We’re supposed to listen to what customers say they want, make nothing more than a “minimum viable product”, ant iterate our way to success.”

The entrepreneurs of Silicon Valley learned four big lessons from the dot com crash:

  • Make incremental advances
  • Stay lean and flexible
  • Improve on the competition
  • Focus on product, not sales

However, the opposite principles are probably more correct:

  • Its better to risk boldness than triviality
  • A bad plan is better than no plan
  • Competitive markets destroy profits
  • Sales matters just as much as products

Seven questions & the cleantech bubble

The 1990s had one big idea: the internet is going to be big. But too many internet companies had exactly that same idea and no others. An entrepreneur can’t benefit from macroscale insight unless his own plans begin at the micro-scale. Cleantech companies faced the same problem: no matter how much the world needs energy, only a firm that offers a superior solution for a specific energy problem can make money. No sector will ever be so important that merely participating in it will be enough to build a great company. Most cleantech companies crashed because they neglected one or more of the seven questions that every business must answer:

  • The engineering question: Can you create breakthrough technology instead of incremental improvements?
  • The timing question: Is now the right time to start your particular business?
  • The monopoly question: Are you starting with a big share of a small market?
  • The people question: Do you have the right team?
  • The distribution question: Do you have a way to not just create but deliver your product?
  • The durability question: Will your market position be defensible 10 and 20 years into the future?
  • The secret question: Have you identified a unique opportunity that others dont see?

He then argues that most cleantech companies did not have a answer for most of these questions. However, one company that did get 7 of 7 was Tesla:

Technology: Tesla’s technology is so good that other car companies rely on it: Daimler uses Tesla’s battery packs; Mercedes-Benz uses a Tesla powertrain; Toyota uses a Tesla motor. General Motors has even created a task force to track Teslas next moves. But Tesla’s greatest technological achievements isn’t any single part or component, but rather its ability to integrate many components into one superior product. The Tesla Model S sedan, elegantly designed from end to end, is more than the sum of its parts: Consumer Reports rated it higher than any other car ever reviewed, and both Motor Trend and Automobile magazines named it their 2013 Car of the Year.

Timing: In 2009, it was easy to think that the government would continue to support cleantech: “green jobs” were a political priority, federal funds were already earmarked, and Congress even seemed likely to pass cap-and-trade legislation. But where others saw generous subsidies that could flow indefinetely, Tesla CEO Elon Musk rightly saw a one-time-only opportunity. In January 2010 – about a year and a half before Solyndra imploded under the Obama administration and politicized the subsidy question – Tesla secured a $465 million loan from the U.S. Department of Energy. A half-billion-dollar subsidy was unthinkable in the mid-2000s. It’s unthinkable today. There was only one moment where that was possible and Tesla played it perfectly.

Monopoly: Tesla started with a tiny submarket that it could dominate: the market for high-end electric sports cars. Since the first Roadster rolled off the production line in 2008, Tesla’s sold only about 3000 of them, but at $109,000 a piece that’s not trivial. Starting small allowed Tesla to undertake the necessary R&D to build the slightly less expensive Model S, and now Tesla owns the luxury electric sedan market, too. They sold more than 20,000 sedans in 2013 and now Tesla is in prime position to expand to broader markets in the future.

Team: Tesla’s CEO is the consummate engineer and salesman, so it’s not surprising that he’s assembled a team that’s very good at both. Elon describes his staff this way: “If you’re at Tesla, you’re choosing to be the equivalent of Special Forces. There’s the regular army, and that’s fine, but if you are working at Tesla, you’re choosing to step up your game.”

Distribution: Most companies underestimate distribution, but Tesla took it so seriously that it decided to own the entire distribution chain. Other car companies are beholden to independent dealerships: Ford and Hyundai make cars, but they rely on other people to sell them. Tesla sells and services its vehicles in its own stores. The up-front costs of Tesla’s approach are much higher than traditional dealership distribution, but it affords control over the customer experience, strengthens Tesla’s brand, and saves the company money in the long run.

Durability: Tesla has a head start and it’s moving faster than anyone else – and that combination means its lead is set to widen in the years ahead. A coveted brand is the clearest sign of Tesla’s breakthrough: a car is one of the biggest purchasing decisions that people ever make, and consumers’ trust in that category is hard to win. And unlike every other car company, at Tesla the founder is still in charge, so it’s not going to ease off anytime soon.

Secrets: Tesla knew that fashion drove interest in cleantech. Rich people especially wanted to appear “green”, even if it meant driving a boxy Prius or clunky Honda Insight. Those cars only made drivers look cool by association with the famous eco-conscious movie stars who owned them as well. So Tesla decided to build that made drivers look cool, period – Leonardo DiCaprio even ditched his Prius for an expensive (and expensive-looking) Tesla Roadster. While generic cleantech companies struggled to differentiate themselves, Tesla built a unique brand around the secret that cleantech was even more of a social phenomenon than an environmental imperative.

Av Eirik Nereng

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