## Zero to One – Peter Thiel & Blake Masters

### Bottom line, if you’re in business, invest in business, thinking about starting a company or are currently starting a company, you should read this book!

The premise of the book is that you have to control your destiny, do not depend on luck and do not think it will happen automatically. Creating a new business category happens only once, hence 0 to 1 (technology). Whereas incremental progress is 1 to n (globalization). Thiel outlines how to make that happen, drawing from his experience as one of the founders of PayPal and Palintir. He offers very good advice, but no magic bullet, because there are no magic bullets.

Brief chapter overviews:

In the 1999 crash, businesses learned the wrong lessons and they are still practicing them. They should have learned to be bold, plan, not enter competitive markets and put energy into distribution.

You must create a monopoly company. Monopolies are what drive the future as they allow founders to do long term planning vs. short term planning. Competition kills the ability to do long term planning so avoid it at all costs.

To build a monopoly company you need some combination of proprietary technology, network effects, economies of scale and branding.

You must take control of your future by planning for it, chance will not get you there.

Remember the power law, only a small percentage of companies can ever succeed at a substantial scale. When it comes to your own life think hard about what will be valuable in the future, then pursue that will everything you have.

To build a valuable company you have to do something nobody has done before. To do that you have to tap into secrets that aren’t already universally understood.

When starting a new company you have to start right and have committed founders that add value.

Company culture should be of like minded people with individual talents. Internal conflict will tear a startup apart.

It is essential to have distribution and count it as part of your initial design. A company that has a product without good distribution is doomed to failure.

The computer should be a complement to human activity, it should supplement decision making.

If you want a successful business you must answer the following questions:

Do you have a breakthrough technology? Why is now the right time? Are you starting with a big share of a small market? Do you have the right team? Do you have a way to deliver your product? Will your position be defensible for 10 – 20 years? Have you identified a unique opportunity that others don’t see?

Thiel’s overriding question is whether we will be able to escape from optimistic indefinite and get back to optimistic definite. To do this we must think for ourselves and build businesses that go from 0 to 1. I get the feeling Thiel isn’t so optimistic about this.

I thoroughly enjoyed Thiel’s book and feel that he shared some of his secrets with us. I also think it is important to move the dial back to doing some planning after moving so far toward indeterminism. Creating a unique technology is no doubt a difficult task, but it is what is needed to keep our society moving forward. As a country we need to create the proper incentives so that smart people work on hard problems instead of spending that intellectual capital in the markets. It should be just as attractive for someone with the capabilities to be a scientist or engineer as it is to be a Wall St. trader/analyst. How do we get there?

A special thanks the Zero to One team for the advanced reader’s copy!

Book Notes

## The Forgotten Man

“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X. As for A and B, who get a law to make themselves do for X what they are willing to do for him, we have nothing to say except that they might better have done it without any law, but what I want to do is to look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who never is thought of. He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him.”

See the whole article

## Good advice from Daniel Kahneman

I think academia would be a better place and with a little less ego if we all followed your lead on this! Finally, you’re working on well-being now. What can we do to boost our well-being?
I can think of three things. First, change the way you use your time. Time is the ultimate finite resource – we should use it as if it is. Second, try to pay attention to the things that make your life better rather than concentrating on the things that make your life worse. And the third I think is to invest your time on activities that you will continue to pay attention to. For example when people buy a car they imagine themselves driving the car and enjoying it. But most of the time when you actually own the car and are driving it you’re not attending to it. However, when you are socialising with friends you are attending to that activity. So there are activities that are attention-rich intrinsically. If there are good activities that are attention rich you should work on them – you should try to have a lot of them in your life. I think people don’t do that enough.

## Before You Bet, Understand Expected Value!

With the upcoming super-bowl and all the betting surrounding it, you should understand expected value before you make any bets.

Informally, the expected value can be interpreted as the long-run average of the results of many independent repetitions of an experiment. (from wikipedia)

By using expected value as a guide over your life, you should come out ahead.

How to calculate expected value:

Say you have two options, one is to bet in a superbowl grid and the other is to bet on a 0-9 pool. To calculate the expected value of each do the following:

Expected Value = – (chance of losing * amount lost) + (chance of winning * amount won)

Ex. -(.99 * $100) + (.01 *$10,000) = $1 (Superbowl Grid) (The above is simplified as with the grid you have a .01 chance of winning each quarter and for the half) Ex. -(.9 *$100) + (.1 * $1,000) =$10 (0-9 pool)

Which would be the better choice?

In most decisions in life you would prefer the expected value be more than the amount at risk, this rarely happens with betting and is the reason the house always wins.

## Stop Blaming the Employer!

Over the past few days I’ve had several people tell me that business is taking advantage of employees. When recessions hit, the employer exploits the situation in his favor, to the employees’ detriment. While this may be the case in some situations I don’t think it is in the majority of cases.

The employer may be an easy target in this situation, but the anger and frustration is misguided. The ability of an employer to pay an employee stems from demand for the employers product. If the demand shrinks, then his demand for employees with the skill to produce the product shrinks. With shrinking demand comes shrinking revenue. Without revenue to pay the bills, including payroll, expenses have to be reduced. There really is no other choice here if the business wants to remain viable.

There are several reasons why demand might shrink. There are two overwhelming reasons in the current situation that I see. First is that consumers (including businesses) have reduced or are reducing their spending, this directly translates into reduced demand. The second is globalization is providing real competition for technology related skill sets. If you can’t differentiate yourself and provide real value it is hard for any employer to justify regular salary increases. Remember the employer must compete with other companies that can and will take advantage of these cost differences.

Another cause of reduced revenue is the inherent idea of consumers to want to buy the cheapest items possible that satisfies their need. With companies competing for the limited spending, this directly translates into less revenue for the company that you are buying from. The reduced revenue means reduced employment, but also means the most efficient business will be successful and will add jobs once demand increases. In a world of global competition keep this in mind when you think that your employer is not being fair. He is working in a world where to survive he has to make the best economic decisions to keep the business operating and competitive.

What can you do to change this and improve your situation? Learn new skills that makes your company more competitive. If you can show that your new skills bring value to the company then most employers will be willing to share that with you (remember it may take some time to actually realize revenue from your new skills). If they aren’t then maybe it is time to find a new employer. You can bring value by selling jobs, learning new skills that are in demand by current clients or by increasing efficiency and thereby reducing costs. If you are not willing to do anything then you really only have yourself to blame.

If you are feeling like a victim of the current recession my advice is to get up and do something about it. Learn something new, at no time in history has there been such valuable information available for free. Help make your company more competitive and you will come to realize that taking action is a much better path than dwelling on your perceived misfortune.

## Milton Friedman on Inflation

From “Free to Choose”, chapter 9

Below are Milton Friedman’s five simple truths regarding inflation.

1. Inflation is a monetary phenomenon arising from a more rapid increase in the quantity of money than in output (though, of course, the reasons for the increase in money may be various)
2. In today’s world government determines – or can determine – the quantity of money
3. There is only one cure for inflation: a slower rate of increase in the quantity of money
4. It takes time – measured in years, not months – for inflation to develop; it takes time for inflation to be cured.
5. Unpleasant side effects of the cure are unavoidable.

The United States has embarked on rising monetary growth four times during the past twenty years. Each time the higher monetary growth has been followed first by economic expansion, later by inflation. Each time the authorities have slowed monetary growth in order to stem inflation. Lower monetary growth has been followed by an inflationary recession. Later still, inflation has declined and the economy has improved. So far the sequence is identical with Japan’s experience from 1971 to 1975. Unfortunately, the crucial difference is that we have not displayed the patience Japan did by continuing monetary restraint long enough. Instead, we have overreacted to the recession by accelerating monetary growth, setting off on another round of inflation, and condemning ourselves to higher inflation plus higher unemployment.

We have been misled by a false dichotomy: inflation or unemployment. That option is an illusion. The real option is only whether we have higher unemployment as a result of higher inflation or as a temporary side effect of curing inflation.

In my view, we have and will have higher unemployment as a result of higher inflation. I think we are currently in the economic expansion from monetary growth. Based on comments earlier in the same chapter, increased monetary supply takes six to nine months to work its way through the system to increase economic growth and employment. Another 12 to 18 months elapse before the price level appreciates and inflation occurs or is speeded up.Given that a sharp increase in money supply started mid 2008, that would point to first quarter 2009 impact. This may be consistent with the above as we saw a market bottom in March 2009. So that would point to the end of the 1st quarter 2010 to the 2nd quarter 2010 to start seeing increased inflation.

Let’s see what happens.