This book is a collection of ideas and reflections on the intersection of economics, culture, and technology. It also provides a framework to process and understand businesses, be them existing and established, or inception-stage ventures.
One of the main concepts is that of horizontal versus vertical progress. Horizontal progress is making marginal improvements to existing things. This type of progress is easy to imagine because it is not fundamental. Adding yet another lens to a smartphone is an example of horizontal progress. Vertical progress, on the other hand, is creating something fundamentally new: going from zero to one…
Horizontal progress can also be called incrementalism. We are taught, from an early age, that we have to move slowly, one step at a time. The ideal is to be better than our peers but just by a little. If we learn something that’s not on the test, we don’t get any credit for it, but if we do exactly what our teachers ask, and do it slightly better than our classmates, we get an A. This conditioning numbs our risk-taking adventure muscle.
Capitalism and competition are opposites
Here’s one of the core ideas I took from the book. I always thought that intense competition was a sign of a healthy capitalist system, but on a more fundamental level, capitalism is about accumulating capital, and intense competition erodes all profits away. Moreover, perfect competition stifles innovation, as businesses are too focused on today’s margins to the detriment of planning for the long-term. When we think about a new enterprise, we don’t want to set up an undifferentiated commodity business, what we want is a monopoly. We want to define a relevant market and aim to be the monopolist of such market. There is a distinction to make here: we want to be the monopolist by “adding entirely new categories of abundance to the world” (for example, Google created answers to all our queries), not by securing exclusive permits from government agencies to corner an already existing market.
Side note: monopoly is not illegal in the United States, but monopolization is. Monopolization: taking advantage of one’s monopoly position to unfairly exploit, maintain, or enhance one’s market position. There is a distinction.
Moral stance: you are not a lottery ticket… and be a monopoly of one
A cursory read of Fooled by Randomness by easily impressionable minds would lead us to conclude that randomness plays such an outsized role in life that thinking that we can control our destiny is a quixotic stance at best. I adopted that position for a couple of years, it made me sound smart and philosophical, but didn’t provide any advancement. Then I read a few books by Richard Dawkins and understood that, even if some ultimate truths are unattainable, we just have to keep trying to reach them, because, in the process, we make discoveries of things we never thought existed or were possible.
Thiel makes the same argument as Dawkins. If we believe the future is definite (as opposed to ruled by randomness), it makes sense to work to try to shape it. And in the process, let’s not try to be a multi-faceted mediocre and call ourselves “well-rounded”, we should strive to find the one best thing to do and then do it. We spent too much effort trying to be indistinguishable, when we should instead be focused on being great at something specific… and be a monopoly of one.
On optimism, pessimism, and indefinite philosophy
Besides the concepts of definite vs. indefinite future, there stand the optimistic and pessimistic positions.
Indefinite Optimist: thinks the future will be better but doesn’t know how. Instead of building a new product, he simply rearranges existing ones: a banker rearranges capital structures of companies, a consultant optimizes processes.
Indefinite Pessimist: thinks the future will be worse and he can’t control it, so he believes his best choice is to enjoy the present while it lasts. This is Europe and its dolce vita and 2-month vacations.
Definite Pessimist: thinks the future can be known and it’s ugly, so he must prepare for it.
Definite Optimist: believes that the future will be better if she works to make it better.
The definite pessimist sounds schizophrenic.
The workplace
There is an unwritten rule that says that we shouldn’t become close friends with our coworkers. It can create conflicts of interest, an uncomfortable workplace environment, it could even be perceived as sexual harassment!
Thiel says this is not only unfortunate, but also irrational: if the most precious asset we have is time, it is stupid to spend most of it in the company of people we don’t really know, care for, or envision any long term relationship with. “If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well-even in purely financial terms.”
Starting small and Chinese Math
A recommendation for entrepreneurs is to start small. Very small. “It’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.”
Reminds me of the Chinese Math concept I heard from James Altucher. “I have this ‘great’ idea with huge revenue potential: there are 1.4 billion people in China, if we sell this product for $1 to each person, then we’re already a billion dollar company.” James said that whenever he heard a pitch that included Chinese Math, he would immediately decline investing in the company.
Define a small but relevant market.
Extra credit: college is a trap
The following passage applies to the United States and perhaps other developed countries, but I think that reality is quite different in developing countries where socioeconomic layers are rigid and static, and the only ways to break through layers are 1) run for president and win the election, or 2) go to college, fight discrimination, and inch your way up the chain.
Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking. For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation. Why are we doing this to ourselves?
Thanks for the prompt to read the book. As a capitalist and an entrepreneur (and an economist by education), I find Thiel’s simplistic definitions of capitalism and competition unsatisfying. Capital accumulation is but one feature of capitalism and ignores a fuller definition of what it is to be human. Competition includes a great deal of indirect competition which lies in between monopoly and perfect competition. My blog is about four types of capital for entrepreneurs (and many “shades” of each), and that complex set of options shows how the simplistic arguments of Marx et al have been overwhelmed by subsequent evolution of capitalism.
Hi Don, good observations. There definitely are limits to simplification. I’ll check your blog as I am intrigued by your comment.
Do you have a list of top 5 or 10 books on this topic that you can recommend?