Instituto Tecnológico de Estudios Superiores de Monterrey

Campus Monterrey

Zero to One Analysis

Azael Capetillo

Manuel Carzo A00820458

Innovation Workshop

September 2, 2019
Index

Introduction………………………………….…………………………………………………...3

Contrarian Truth…………………………….…………………………………………………...4

Dominating Small Markets…………………………………………………………..…………6

Monopolies……………………………………………………………………………………....7

Conclusion……………………………………………………………………………………….8

References………………………………………………………………………………………9

2
 Peter Theil is probably one of the most brilliant entrepreneurs and businessmen

of the decade and yet doesn’t receive the recognition he deserves. After reading Peter

Thiel’s book, Zero to One, I have changed my mind in many ways on how to start a

business, what sector to attack and in which healthy way can you do it. Even though I

wasn't fully convinced by some of his points, I think he's really smart and knows what

he's talking about in his method for creating great businesses. The pure fact that he

created companies like PayPal, LinkedIn and Yelp, says a lot about his business and

thinking abilities. I believe as well that the core team he kept when moving from PayPal

into newer companies where key factor in the development of his new projects. A strong

powerful well-matched team with the same mindset and goals really helped him achieve

all he wanted to achieve with every single one of his projects. The way in which he

expresses his way of thinking and the word usage he has really show the level of

complexity and the sophistication of the analysis he makes when entering a new market

with a new business. The economic and business terms are hard to swallow by many

readers, however in my case I have worked in the financial industry for over 2 years this

helping me better understand his terms and really exploiting the maximum value out of

this pure gem. This book I considered a milestone in intrapreneurship a new business

development.it really portrays most of the aspects you need to take account when

starting to look for an opportunity or niche market to attack.in the following essay I will

describe my experience reading this book and the 3 main ideas I believe hold value

within this book and really portray the whole book in a simple manner. The analysis that

will be developed further on is purely based in my opinion regarding Peter Thiel’s ideas

and concepts.

2
 Peter Theil covers the main 3 concepts to consider while starting a new business.

These concepts are revolutionary in the business entrepreneurship world as they are

very different from the preexisting concepts that people have used to describe these

situations or opportunity areas. Not many people agree in the ideas he portrays

however it will be interesting to further develop and break down these. The first ideas

talks about betting in a contrarian truth. Betting on a contrarian truth relies on believing

that something that is done a certain way or has been done for a while can be done in a

completely opposite way and be better. When talking about this Theil says: “If you can

identify a delusional popular belief, you can find what lies hidden behind it: the

contrarian truth.” (Thiel, 2014) The contrarian truth is an opportunity that has usually a

huge potential. He started to believe in his contrarian truth idea with PayPal. In PayPal,

he believes in the future of online payments and secure online capital processing. What

I believe pushed Thiel in this idea was his team. The first team that he had at PayPal

was very close, effective and liked to use this contrarian truth method. This guys are

known in Silicon Valley as the “PayPal Mafia” because every one of them has

developed important tech companies. Since they sold PayPal to eBay for $1.5 billion in

2002 they have used the contrarian truth to develop multimillionaire firms. Elon Musk,

for example, founded SpaceX and Tesla Motors, while Reid Hoffman co-founded

LinkedIn. Steve Chen, Chad Hurley, and Jawed Karim founded a video streaming

platform they later called YouTube, while Jeremy Stoppelman and Russel Simmons

founded Yelp. When analyzing their companies, they are all bringing extra value that no

one ever thought about bringing before. This companies really revolutionize that way

2
things are done within the industry. Today all of those companies are worth more than

$1 billion each leading to a huge value increase from the initial PayPal selling price.

The contrarian truth method has bases in other time frame as well, for example

one quotes from Nietzsche he mentions that says: “Madness is rare in individuals—but

in groups, parties, nations and ages it is the rule.”( Thiel, 2014). Here we can see how a

new idea, or a radical mad change can rule or create a new trend in society. This has

been seen for many years, yet we have trouble striving to achieve this due to our close

mind that captures us or encloses us in a reality framed by the laws of society and

general living. I believe this is a hard principle to achieve as only few people can think

outside the box and generate precise, well developed contrary ideas that impact a

larger chunk of the society. I strongly believe that the contrarian truth is they key to

multi-millionaire markets, however, I believe as well that there are very few niches in

this world with the potential a contrarian truth has. Key elements are needed to exploit

this truth. From the abilities I saw in Thiel, and the way in which he exploited his ideas I

can see that you need these 3 basic elements that he used: Challenging Mentality, a

well convinced team and a plan. Since day 1, the PayPal Mafia was established as a

strong idea centered team that was well convinced to develop something with rather a

volatile yet steady plan. As I covered before, the team was great and shared mentality.

We can see in all their individual projects as well their superior challenging mentality

that lead them towards the prosperous future they were seeking. These elements are

key in any project and I would include as a basic principle to be able to find a contrarian

truth that leads a group or project to a market of this size.

2
 The second idea that Peter Theil talks about is Market domination since the

beginning. Thiel talks about the idea of dominating a small market rather than having a

small piece of a larger market. When growing a new company, you must center efforts

in attacking niche or submarkets rather than huge million-dollar markets, that usually

tend to have lots of competition which end up eating your company though economies

of scale. This is a very interesting way of approaching a new business, yet it is true and

very effective. Thiel uses a very recent example (Tesla) by explaining the following:

“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

sold only about 3,000 of them, but at $109,000 apiece 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.”( Thiel, 2014).

Stringham another interesting author in entrepreneurship also comments on the Telsa

case in one of his articles by saying: “Starting with partnerships and a minimum viable

product, Tesla is working to innovate and scale up.” (Stringham, 2015). This can be

seen in not one or two but most of the great monopolies in the world like Facebook,

Amazon, Google, etc. This created a total dominium of the market that later created a

loyal well-established costumer base that will help you not only raise capital but

marketing costs in the medium – long run. I had never thought of an idea like this in the

past, however, the cost structure and the idea of being a monopoly even in a small or

niche market seems interesting and powerful towards entrepreneurship models. The

unique and new manner of attacking markets really relies of expanding slowly but

steady eating niche markets or slices of the cake until you reach the maximum potential.

2
 The third and las idea that Thiel covers is to really strive to be a monopoly. The

constant push companies must have towards a monopoly is key towards development

and future time in the top of any market. Thiel talks about a good and bad monopoly, he

explains that being a monopoly is not always bad and that if you don’t push the price

nor the competition, you can be a good monopoly. He states that companies that give

back to society in a way are not bad monopolies and that being a monopoly is the key

for maintaining your brand, differentiator or product at top. In his article, Competitions is

for Losers, he uses some references towards this book on how you must strive for this

monopolistic status. He says: “Creating value isn’t enough, you have to keep at least

some of the value you create.”(Thiel, 2014) This is very truthful as most companies who

create value and compete later lose it against someone else with the same idea or the

same idea but improved a bit. Butz, in Durable-Good Monopoly and Best-Price

Provisions, approves his way of thinking and reinforces that the only way to make

money constantly in the long run is a monopoly. He quotes: “A good durable monopoly

has the enough provisions to maintain a cost structure and is not affected by market

movements or price changes which makes it the constant good buy for everyone

(Butz,1990).

These are great for theories for doing business however I differ with Thiel that

good monopolies really exist. I think yes, they are great business for the owner,

however I don’t believe that they are good for the economy. I believe that they are bad

for perfect competition and do not help the rest of the preexisting companies grow or

generate income for themselves. I think in the way that most economic experts think.

Monopolies ruin competition and lead to cost pushing which affects society in general

2
and can lead to country wide economic issues. In Monopoly Pricing with Negative

Network Effects, by Kessing, we can see how monopolies affect entire economies. He

talk about how economies are lead to ruin by wrong cost practices and bad cost setting

that ruins entire economies.

As a whole I believe this book as a great read and will really impact my way on

interpreting and analyzing new business creation. I believe Thiel is truly a genius

entrepreneur and has ideas that have lead him to the places he has reached to date.

His theory should be read by more and if everyone strives for monopoly I am pretty sure

we would have great competition with companies showing great value. The world’s

future purely relies in the constant innovation and entrepreneurship that leads to more

and sophisticated project that indeed help not only the economy but citizens as a whole.

2
References

Butz, D. (1990). Durable-Good Monopoly and Best-Price Provisions. The American

Economic Review, 80(5), p.15.

Kessing, S. and Nuscheler, R. (2003). Monopoly Pricing with Negative Network Effects.

SSRN Electronic Journal.

Stringham, E., Miller, J. and Clark, J. (2015). Overcoming Barriers to Entry in an

Established Industry: Tesla Motors. California Management Review, 57(4), pp.85-103.

Thiel, P. (2014). Competition is for Losers. Wall Street Journal.

Thiel, P. and Masters, B. (2014). Zero to one.