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How Peter Thiel repackaged conventional wisdom as bold contrarianism

Peter Thiel, author of Zero to One
Peter Thiel, author of Zero to One
Chip Somodevilla/Getty Images

The remarkable thing about Zero to One, the new book by PayPal billionaire Peter Thiel, is how successful it is at re-packaging Silicon Valley's conventional wisdom as bold contrarianism. (Read my colleague Ezra Klein's interview with Thiel here.)

There's nothing wrong with presenting conventional ideas as more novel than they really are — it's practically required if you want your book to be a best-seller. But Thiel builds his contrarian cred on a pile of vanquished straw men, contrasting his own views against caricatured positions that hardly anyone actually agrees with.

And in the process of pouring old wine into new bottles, Thiel drains these conventional ideas of much of their utility. Zero to One is long on provocative and seemingly original claims, but short on specifics that can help actual entrepreneurs succeed.

Monopolies are good for monopolists but bad for consumers

Thiel advises readers to emulate Steve Jobs, building a business that's so successful that it's practically a monopoly. (Justin Sullivan/Getty Images)

The central argument of Zero to One is that the world has an unhealthy infatuation with competition. Thiel notes that the most successful businesses — and the ones that do the most to push humanity forward — are monopolies.

But America has come under the sway of what Thiel calls the "ideology of competition," which holds that competition is the key to success and prosperity. Thiel says this is all wrong. If you run a business in a fiercely competitive market, you're probably not doing anything terribly original, and you're unlikely to make big profits.

But the argument for competition has never been that it's good for companies facing competition — obviously it's more lucrative to have a monopoly. Rather, the case for competition is that it's good for consumers. For much of his book, Thiel conflates these two claims, treating the fact that monopolies are good for monopolists as evidence that monopolies are good for society generally.

To be fair, there's a brief passage where Thiel acknowledges the distinction. Following Joseph Schumpeter, he argues that the possibility of earning monopoly rents creates an incentive for businesses to invest in new technologies. In a market that was always perfectly competitive, he says, there would be no reason for anyone to invest in new technologies.

But no one actually thinks textbook perfect competition should (or even could) prevail in every market. No one is demanding that there be thousands of companies making search engines or smartphones the way there are thousands of farmers growing corn. Hardly anyone thinks it's a problem that Apple and Google have earned big profits from their excellent products.

And while it's true that consumers benefitted from the creation of Google, it doesn't follow that the company's continued dominance of search is something to celebrate. Consumers would be even better off if Microsoft made Bing a strong enough search competitor that it kept Larry Page up at night.

Build lean startups, just don't call them that

Mark Zuckerberg first tackled a small market — college campuses — before expanding Facebook into a global giant. (Scott Olson/Getty Images)

Thiel advises entrepreneurs to formulate ambitious long-term plans. In contrast, he claims, conventional wisdom advises mindless incrementalism:

The buzzwords of the moment call for building a "lean startup" that can "adapt" and "evolve" to an ever-changing environment. 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," and iterate our way to success.

Thiel argues this approach betrays a lack of ambition. "Iteration without a bold plan won't take you from 0 to 1," he says.

But this is another straw man. Leading business thinkers don't tell aspiring entrepreneurs that "nothing can be known in advance."

Take Eric Ries's popular book The Lean Startup, for example. "Products change constantly through the process of optimization," Ries writes. "Less frequently, the strategy may have to change. However, the overarching vision rarely changes. Entrepreneurs are committed to seeing the startup through to that destination."

Meanwhile, Thiel's own history suggests that he doesn't actually object to companies adapting and evolving in response to customer feedback. The startup that made Thiel wealthy, PayPal, began as a way for users to beam money from one Palm Pilot to another. But it turned out customers didn't want to beam money from one Palm Pilot to another; they wanted to send money over the internet. So in 1999, Thiel iterated. He revamped the product, creating the PayPal we know today and becoming wealthy as a result.

Here's the advice Thiel offers to startup founders later in Zero to One:

Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: it's easier to dominate a small market than a large one... Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.

"Start with a minimum viable product" and "start with a small market" are two ways of giving the same advice. Gradually expanding into adjacent markets is part of the iterative process advocated by startup gurus like Ries. In short, Thiel is effectively offering the same advice as the buzzword-purveyors he had criticized earlier. He just uses unconventional language to obscure the similarity.

"Build a monopoly" isn't practical business advice

Thiel never really explains why Google, founded by Sergey Brin and Larry Page, was so successful. (JOHN MACDOUGALL/AFP/Getty Images)

These sleights of hand would be easy to overlook if Zero to One offered practical advice for budding startup founders or others looking to succeed in business. But it's here, where Thiel's own experience as an entrepreneur ought to offer the richest insights, that the book really falls short.

Throughout the book, Thiel points to Facebook and Google as examples to emulate. Startup founders, he argues, should aspire to be like Larry Page and Mark Zuckerberg, men who built huge and durable monopolies. They should avoid being like those bozos in the late 1990s who tried to get rich by building yet another pet food startup.

But these examples illustrate how vacuous Thiel's theory about monopolies is in practice. Thiel urges founders to start in a small market they can dominate — building a miniature monopoly — before moving on to tackle larger markets. He urges people to ask themselves, "what valuable company is nobody building?"

Google didn't do this at all. At its founding in 1998, Google entered a market that was already cluttered with search engines. Of course, Google was better than search engines that were already out there ("Google's search algorithms return results better than anyone else's," Thiel helpfully explains). But "make your product better than your competitors' products" is hardly original or helpful business advice. The difficult question is how, and Thiel doesn't have much to say on the subject.

Or take Facebook. When Mark Zuckerberg started the company in 2004, there were already several social networking sites on the market, including Friendster, Orkut, and MySpace. Zuckerberg's strategy of beginning on college campuses wasn't even original — other sites like ConnectU (whose founders claim he stole the idea from them) and CampusNetwork were doing the same thing.

Zuckerberg's success seems to have largely come from a combination of good timing and excellent execution. Friendster lost momentum because it couldn't upgrade its servers fast enough to handle growing popularity. MySpace's software was full of bugs. Facebook was fast, reliable, and had a well-chosen set of features. In short, Zuckerberg succeeded by entering a crowded market and out-competing other rivals — exactly the thing Thiel suggests you should avoid doing.

To the extent Thiel tries to explain Facebook's success, his explanations are totally conventional: Facebook started in a small market and then grew over time, and it benefitted from strong network effects. Monopoly had nothing to do with it.

Of course, Google and Facebook are "monopolies" today. But that's a just a result of a good business decisions their founders made when their companies were small and had a lot of competitors. "Become a monopoly" isn't a business strategy in its own right.

Less than meets the eye

To be clear, Zero to One has plenty of perfectly valid business advice. It really is a good idea to start with a small market and grow over time. It's obviously better to start a business that has a shot at capturing a big share of a large market than a modest slice of a small one. And Thiel offers some good advice about how to choose co-founders and investors, how to cultivate a good startup culture, and about the importance of marketing.

But there are lots of books that offer equally good advice — in many cases, exactly the same advice — without trying to trick readers into believing that these mainstream ideas are at odds with the conventional wisdom. Ries's Lean Startup, for example, offers many of the same suggestions. But Ries explores these ideas in greater depth than Thiel, offering a wealth of real-world case studies. And his book isn't cluttered with sweeping pronouncements that don't stand up to close scrutiny.

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