How To Build The Future A Book Review

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Zero to One Notes on StartUps, Or How to Build the Future: A Book Review

Peter Thiel one of the co-founders of PayPal and Palantir and also an early investor in

Facebook writes about different aspects of starting up a business, how to run it, and how to make

it successful. From previous comprehensive notes taken from his by one of his students (Blake

Masters) at Stanford University, Thiel Ideas’ on starting a business are compiled, and the result

is the "Zero to One" book. Among different aspects of startups, Thiel looks at how one should

start a company and differentiate it to create a “monopoly” in the market to ensure that limited

competition is available or at least the company can cope and have the largest market share as

Google and Facebook have done. The ideas presented by Thiel compliments or can be used in

managerial economics since the concept entails directing scarce resources to manage cost

effectiveness. When starting a business, the resources are limited; thus, managerial economics

are needed. Thiel looks at the secret as creating a unique product, differentiating its market, and

concentrating much on a smaller market at the initial stage before rolling out to a bigger market.

Thiel in the second chapter starts by looking at how those starting up should think in

creating the product. “Positively defined, a startup is the largest group you can convince of a plan

to build a different future” (Thiel and Masters 5). For a new company, the thinking process

determines its future which makes it the most fundamental process and the strength of the

enterprise. To succeed, the foundation involves big thinking from creating the concept, bringing

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it to life and getting to the intended market. That is why Thiel believes that for a startup, a small

size market gives space to think and experiment. From thinking small then thinking big is

developed. The managerial economics of using the small available to maximize profits and

reduce operation costs helps to create a larger product from the smaller one. From there it is

possible to convince investors to invest into the product and make it grow bigger. In this case, a

good example is how Facebook began. From a concept of a single classroom in Harvard, Mark

Zuckerberg and his friends grew to become a world product. Thus, it is from smaller thinking

that a larger thinking is developed and not the other way round.

The secret to starting up a successful business lies in the creation of a unique product.

The future of any startup is infinite meaning that it is impractical to predict it, but it is possible to

learn from the businesses that have been operational and those that have failed. For example,

Thiel looks at the lessons learned from failures in the Silicon Valley and the dot-com mania

which include; staying lean and flexible, improving on the competition, staying focused on the

product and not simply the sales part (Thiel and Masters 13). For a startup, Thiel warns that

having a rigid plan can mess up everything, hence, it is important to stay focused at the market

demands and become flexible to ensure that the product meets customers’ demands. In line to

this, managerial economics is about the creation of value through using the scares resources

available and maximizing the recourse to achieve full potential. When the product is unique, it is

possible to apply the managerial economics through utilizing the available resources and

reaching out to the market to make as much profit as possible.

The idea behind every successful business is its’ ability to differentiate its’ products or

services from the competitors. There are so many players in the technology industry but often a

new product emerges in the market that is differentiated from others, and this makes it

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successful. For example, when online payment is mentioned synonymous to that is PayPal that

comes to mind. However, in the recent past, in Kenya-an East African country, a new form of

online payment through mobile money platform (Mpesa) has emerged, and it has become very

successful. In this case, what makes Mpesa successful is its ability to differentiate its services

from big players such as PayPal and Skrill among others. This differentiation allows the business

to avoid competitions from the experienced and the existing businesses. The same concept

should be applied to all startups that want to succeed in different markets. This will help to create

some form of monopoly and reduce competition that reduces profit margins.

According to Thiel and Masters (20), market shares and profit distribution is another

fundamental concept that any starting business should always consider. When starting a business,

your product might be different, but much of success will depend on the ability to compete with

others. For example, Thiel notes how China is replicating the success of other countries through

copying what they have done to become successful. This shows that every new startup faces the

challenges of competing with its replicates who might be much stronger. It is upon a starter to

understand its market share and how to acquire as much profit as possible. In this case, the

managerial economics concepts are essential as it guides the founders on ways of making much

profit and using fewer recourses. The competitive advantage of a company can only be achieved

through using the managerial economic skill that ensures maximum profit capitalization and

minimum resource utilization.

The ideology of competitions is another key concept that dominates the book. A business

does not exist in a vacuum but among people who are always competing. For example, the

mobile phone industry is dominated by a few giants such as Samsung, Apple, Sony, LG, among

other popular brands. In the same sector, there are hundreds of players especially from China

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who have not acquired any significant market share. On the other hand, when considering the

failure and exit of Nokia (once one of the largest market shareholder) from the same market, it is

clear that competition is an important consideration in the market. In this case, the managerial

concept of competitive market plays a major role as it defines how markets with many sellers

and many buyers compete and how when seller become many some of the players are forced to

leave the market because of failing to compete with others. The case of Nokia can be looked as

having power economic, managerial skills that led to ineffective competition in the market.

Therefore, it is important to consider the perfect and imperfect competition and come up with

strategies that favor your organization.

The power law of venture capital which Thiel identify as the ability of venture capitalists

to identify, fund, and promote promising businesses at their early stages and expect some returns

in future when the company grows (Thiel and Masters 53). As an investor or a starter of the

business, you invest your money and time on that business and many other resources. It becomes

necessary for you to succeed in that business mainly because you want to see the return of your

hard work. For investors, they have to pay much attention before considering to invest in

business. They look at the potential of the business to grow in future and return the entire funds

invested and the agreed upon profit. Thiel notes that “Every single company in a good venture

portfolio must have the potential to succeed at vast scale” (Thiel and Masters 61). The

implication is that with a good managerial economics, every business has a potential to grow and

excel. This connects with the power law of venture through entering into a business that will

potentially grow and employing critical economic, managerial skills to achieve the ultimate

success of the company.

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After discovering the secrets of starting a business, evaluating the market including the

shares, competitions and other factors, the foundation of the firm comes to the mind. Thiel and

Masters argue that you should lay a good foundation for a startup because a bad foundation

cannot be fixed (69). The foundation of every venture determines its future. Therefore, it is

important to consider the people that you partner with and how skills are complemented in the

partnership. In a partnership, the ownership and control of the business belongs to the partners.

This means that the partners should be fully committed to the venture. This commitment and

complement of skills play an important role when external investors are looking at the reasons to

invest in the business. Beneath this concept lays the economic, managerial concept of

compensation. For a starting company compensation should not be the driving force but the will

to succeed in the business. The CEO and other top officials should not be overpaid to avoid them

being overtaken by the drive for money. In the same line, the recruiting process of a startup

should consider the relationship between employees. The economic, managerial concept of

human resource management should come in hand to create a culture of good relationships

between employees and complement of each other’s skills.

Another key concept in the book is selling the product. Businesses exist to make money,

and this can only be achieved through the selling of products and services. Therefore, Thiel

considers the whole chain of marketing and distributions as an important factor in all businesses

from starters to the existing business. Technology should be used to complement the entire

process from concept creation, product development, to distribution in a way that it does not

replace humans. Importantly you should consider the product itself rather than the selling

process. It is only through product improvement that the product gains more market share and

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sales rises. This is a key consideration when it comes to the managerial economics of marketing

of a product.

In conclusion, Thiel focusses on the aspects that make startups successful in the different

industry. The book was able to address its thesis through offering insightful concepts on how to

start a business, evaluate the market, define the market, determine the competitive strategies,

look out for investors, market the product, distribute and sell the product. These concepts

connect with managerial economics through establishing different look out points that managers

look in determining the specific direction to take. This includes communications necessary with

the various players in the market such as the distributors and the marketers.

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One Page Summary of the Key points

Point 1: The direction and rationale of thinking when starting a business

When starting a business one should consider the ideas in mind and think them through to ensure

everything is clear in the mind. The same idea is applied in the managerial economics through

exploring different concepts of management such as market evaluation and key communication

strategies.

Point 2: The second point is the creation of a unique product in the market. When thinking of

coming up with a business it is important to think of a new product that is unique. This way it is

possible to deal with competition as managerial economics principles proposes.

Point 3: The idea of product or service differentiation comes up in the book. While creating a

unique product is important, duplicate product might emerge in the market. Therefore, it is

important to differentiate your brand from the rest as proposed in the managerial economics of

marketing and branding.

Point 4: Market share and competition forms another major point in the book. When operating a

business you must understand the market share before even you think of joining a certain market.

Competition can only be managed through having all ideas of how to compete with others.

Point 5: The law of venture capital. This laws is critical in determining how investors will invest

in a venture. A promising business will have many investors willing to invest in the business

while least attractive business will not have any investor.

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Point 6: This point involves the marketing strategies and how to sell the product. As the

managerial economics proposes proper communication strategies should be available. Such

communication is the marketing which is intended to selling the product.

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Work Cited

Thiel, Peter A., and Blake Masters. Zero to one: notes on startups, or how to build the future.

New York: Crown Business, 2014. Print.

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