Zero to One

My first impressions on this book are that it seems excellent, as you might expect from its over achieving author Peter Thiel, who based this book on a popular course he taught at Stanford on startups. In the book he propounds on some familiar themes from his talks such as: the future hasn’t lived up to expectations of the past technologically, the education system is a flawed “tournament” which puts people on a track and sets them against each other in a competition to accumulate credentials which aren’t valuable in themselves, globalization (as in growth in the developing world) is mere copying and inferior to technological growth in a developed country. All of these are interesting perspectives. One new idea is that competition and capitalism are antonyms. This seems to derive from the theoretical micro economic model in which a company can earn “economic profits” in imperfect competition vs. zero profits in pure competition. In essence a seller of wheat cannot exert price power whereas a company with a dominant market position like Google can exert price power and extract profits because Google is or is perceived to be “the only game in town.” From the standpoint of a recipe for an extremely successful start-up I agree with this thesis completely. The idea on a personal level of differentiating yourself and working on a business or project nobody else is, is also very appealing.

However, I think this might be difficult to apply for most people. I could always relate to what Thiel has said about college in the past when he has described it as in some parts a consumption good and in some parts insurance policy because people do not know what to do. In particular, for law students the job market is such that going to a top school and doing well is essential to remaining in the tournament and if you do not your career options rapidly diminish. Thiel reveals that he actually interviewed for Supreme Court clerkships while in law school which are essentially the ultimate prize for a law student. As Thiel describes it, had he gotten the clerkship he would have stayed in law, not founded Paypal and ultimately been less successful. Of course, not everybody who narrowly misses clerking for the Supreme Court or drops out of Harvard can start a company that will go from 0 to 1. There are few companies in the category of Facebook, Paypal, and Microsoft. I wonder that the start up world is not a tournament of its own kind, harder in fact, and one that Thiel happens to have won. Imagine if you did not go to an Ivy League School but still wanted to start the next multi billion dollar company that will define a new industry and allow you to extract quasi-monopolistic rents in the process. Not having gone to Stanford will make it that much harder to convince VCs to fund you. Google famously was funded with very little vetting based on its founders’ credentials. Even if you were as smart as Larry Page and Sergey Brin, which begs the question of why you aren’t at a top school, the very fact you cannot efficiently demonstrate this will handicap you greatly, maybe make the project impossible. In a sense Thiel has diagnosed the problem, people who aren’t demonstrating their brilliance with their degree are wasting their time and money, but there is no real solution. The ugly truth is that people differ in intelligence and the college credentialing system is a waste of time. Still, there is no obvious solution for someone who is not in the top .00001% of intelligence and ambition. I don’t think the solution for them is inventing a whole new category of technology.

Thiel describes four quadrants of future thinkers: indeterminate pessimist, determinant pessimist, indeterminate optimist, determinant optimist. He also criticizes people for lack of clear plans about the future. Thiel does not seem to place much stock in the idea of a technology becoming inevitable at some point due to the law of accelerating returns. I think he perhaps thinks we could have many different businesses like Facebook if we just stopped wasting time in college on a status game and all did our own thing. Its a nice idea but I don’t think its true. Facebook was an obvious idea that was extremely well executed. So was Google. Getting funding and building a business is a tournament too, albeit more meaningful, somebody will get that monopoly-like market position. It won’t be you. Purely based on numbers you probably have better odds of becoming a Supreme Court clerk. This book was well worth reading and any of my criticisms might stem from the fact that it was adapted from a class taught at Stanford. His students are in a better place to apply his advice. I’d also add that companies such as YY.com, a company I own stock in, Chinese, or Waze, Isreali, are going from 0 to 1 outside of the U.S. and sometimes in developing countries. Its something of a myth that all the innovation occurs in Silicon Valley.

Would you spray your own backyard to prevent west nile?

There are trucks traveling around NYC announcing that everybody should go indoors because trucks are spraying for west nile virus. It feels very orwellian to hear the trucks go by. Personally the idea of spraying harsh chemicals that could have long term effects all over the environment near millions of people does not on balance make sense. However, the logic of government is you take action in a visible way. If cancer rates increase in 20 years nobody will blame the current administration. Remote risks are on their radar and we get decisions forcibly made for us that we would not make on our own. I would not spray my own yard for fear of West Nile Virus.