Never invest in a tech CEO that wears a suit.
Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel is a very popular book in India these days. This is hardly surprising since Startups and their crazy valuations are prime time news these days. I recently picked up this book and was very impressed by Thiel’s ideas. This book is packed with lot of useful takeaways for anyone thinking of starting a new technology venture.
Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel
In Zero to One, Thiel argues that building something entirely new (zero to one) is much more difficult than growing something (one to n). He then attempts to lay out the basic principles behind building a successful technology business. The book starts off with a question - Is there an important truth that only few people agree with you? Thiel argues that such a truth is going to be accepted in the near future and hence holds incredible value in the long term. He then lists out a number of things that we learned from the dotcom crash of technology companies during 1999-2001,
- Make incremental improvements
- Stay lean & flexible
- Improve on competition
- Focus on products, not sales
While reading the book, I nodded to all the above. But then he goes on to say that we may have got these wrong. What if,
- It is better to risk boldness than triviality
- A bad plan is better than no plan
- Competitive markets destroy profits
- Sales matter as much as the product
Again I ended up nodding to all of these points. This sudden shift of perspectives was unexpected when I was reading the book. Thiel’s ability to make us think is what makes this book so good. Thiel takes us on an intellectual ride as we get to learn a lot from his experiences as a startup founder (Paypal, Palantir) and a venture capitalist.
Thiel points out that in order to build a successful and sustainable company, the biggest challenge is to escape the competition. The key characteristics of such a monopolistic and successful company are,
- Proprietary technology (this should be at least 10 times better than nearest competitor!)
- Network effects (Start with small markets. For example, Facebook started with Harvard students)
- Economies of scale
- Branding (Build a brand backed by good product)
Thiel goes on to write,
Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
Thiel argues that there are still secrets to be found in the world and such secrets are an important element of innovative companies. According to him we lost belief in secrets due to incrementalism, risk aversion, complacency and flatness. He presents a compelling argument for going after yet to be discovered secrets.
Zero to One contains a lot of interesting anecdotes and stories such as the sad story of French chef Bernard Loiseau who was a 3-star Michelin rated chef. Thiel uses his story as an example of the challenges of undifferentiated commodity business. He also uses the plot of Hitchhiker’s Guide to Galaxy to argue that we tend to underrate the importance of sales in business. Thiel argues that Salesmen are actors and their priority is persuasion, not sincerity. He then points out the art of persuasion in Mark Twain’s Tom Sawyer,
Tom Sawyer managed to persuade his neighborhood friends to whitewash the fence for him— a masterful move. But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser. Not much has changed since Twain wrote in 1876.
According to Thiel, every business must answer the following questions,
- The engineering question – can we create breakthrough stuff?
- The timing question – Is now the right time?
- The monopoly question – Are you starting with a big share of small market?
- The people question – Do you have the right team?
- The distribution question – How do you distribute your product?
- The durability question – Can this last for 10 to 20 years?
- The secret question – Have you identified a unique opportunity?
Thiel predicts that future successful companies will ask this question – How can computers help humans solve the hard problems? He bets on it as he is one of the founders behind Palantir Technologies.
Zero to One is a small and intellectually engaging book. It is an essential read for anyone planning to build a successful and sustainable innovative technology company.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
My Rating: 8/10
"I don’t make predictions. I never have, and I never will." – Tony Blair
Rolf Dobelli’s book, The Art of Thinking Clearly briefly explains common human behaviors which can be interpreted as illogical behaviors. This book is a database of human biases, fallacies and illusions. The title of the book is misleading since people may think that it is a self-help book containing advice on “clear thinking”. It is NOT. A more apt title would be “Human cognitive biases, fallacies and illusions”. But then will it sell?
The Art of Thinking Clearly by Rolf Dobelli
Dobelli uses simple, direct and engaging writing to explain 99 human cognitive behaviors in individual chapters spanning 2 to 3 pages. What I like most about the book is that it is full of interesting quotes, stories and anecdotes. It makes reading pleasant and entertaining. Each chapter provides a brief overview of the bias, overview of relevant scientific studies and finally author’s own advice on the matter. You should take the advice with a grain of salt unless of course you want to become a world-class jerk.
In The Art of Clear Thinking, Dobelli claims that most of our biases are the result of human evolution. Assume that you are born thousands of years ago and you are walking in a forest with your friends. Suddenly all your friends start running. You wouldn’t stop and think before running after them unless you want to end up as lunch for the resident Tiger. People who did think for long quickly exited from human gene pool! Dobelli claims that these behaviors are no longer useful in the modern world where logic and reasoning is the king. However in the epilogue, he admits that he himself doesn’t follow his own advice. Thinking is too tiring to be done every time you need to make a decision!
The Art of Clear Thinking is heavily influenced by Nassim Nicholas Taleb’s books (Antifragile, The Black Swan, Fooled by Randomness). This has lead to allegations of plagiarism by Taleb. Taleb claims that Dobelli not only picked ideas but also sentences from Taleb’s works. Taleb’s accusations are here and Dobelli’s response is here. Other influences on the book are ideas by Warren Buffet and the book Thinking, Fast And Slow by Daniel Kahneman. There are also plenty of references to scientific studies on human behavior, some of which are very interesting! (See – Marshmallow Test Video and Monkey Business Illusion).
I think it is important for key decision makers to be aware of human cognitive biases. Many of the logical decisions we make can have disastrous effects if we are not aware of these biases. Here is a classic example from the book (Never pay your lawyer by the hour),
In 1947, when the Dead Sea scrolls were discovered, archaeologists set a finder’s fee for each new parchment. Instead of lots of extra scrolls being found, they were simply torn apart to increase the reward. Similarly, in China in the nineteenth century, an incentive was offered for finding dinosaur bones. Farmers located a few on their land, broke them into pieces and cashed in. Modern incentives are no better: company boards promise bonuses for achieved targets. And what happens? Managers invest more energy in trying to lower the targets than in growing the business.
Similarly I see confirmation bias every single day on my Facebook feed. People share complete lies without even doing a cursory check for its accuracy simply because it conforms to their beliefs.
For a happy, contended life we should be able to control our thoughts and behaviors. Take for example, the paradox of choice. Beyond a level, more choice doesn’t translate to better life or more happiness. Rather it can lead to unhappiness and stress! Another one of the human weaknesses is our tendency to fall into Hedonic treadmill. The more we achieve, the more we want. The happiness from our possessions are very short lived. These are some of the fallacies covered in the book. But then it is precisely these human imperfections which makes us human. It is the same weaknesses which creates heroes. We need to be aware of our cognitive imperfections, but in many cases our “gut feel” is better than logical thinking. Sometimes we simply don’t have the time for logical thinking!
One thing that I don’t like about the book is the lack of sources and references at the end of the book. An online link for sources is given in the book which no longer works. Authors must ensure that everything part of the book remains in the book since there is no incentive for the publisher to keep online pages available.
The Art of Thinking Clearly is an excellent and entertaining book providing a good overview of human cognitive behaviors. With plenty of anecdotes, stories and quotes, this book is an ideal book to read during your travels. This book can make you aware of human biases which may positively affect your decision making.
The Pope asked Michelangelo: "Tell me the secret of your genius. How have you created the statue of David, the masterpiece of all masterpieces?" Michelangelo’s answer: "It’s simple. I removed everything that is not David."
My Rating: 8/10
- Book: The Art of Thinking Clearly
- The Marshmallow Test (Video Depicting Hyperbolic Discounting Bias)
- The Monkey Business Illusion (Video Depicting Illusion of Attention)
Freakonomics is a collection of interesting problems and a look at how statistical methods lead to surprising answers to these problems. Since the author (Steven Levitt) is an economist, he looks at them with an economist’s eyes focusing on the incentives that drive people behind these problems. It obviously helps to sell the book when the problems and solutions are "controversial". For example, Steven statistically concludes that one of the major reasons for reduction in crime rate in US is legalized abortion! Such conclusions obviously generate a lot of heat.
Book Review: Freakonomics by Steven Levitt
Freakonomics is written by economist Steven Levitt and journalist Stephen Dubner. It has sold over 4 million copies worldwide. It is based on various articles and papers written earlier by Steven Levitt. Each chapter deals with an interesting question,
- What do school teachers and sumo wrestlers have in common?
- How is Klu Klux Klan like a group of real estate agents?
- Why do drug dealers still live with their moms?
- Where have all the criminals gone?
- What makes a perfect parent?
These questions and the statistical solutions to these questions are pretty interesting. The question about Klu Klux Klan and real estate agents is interesting and the conclusion about "experts" hoarding their "specialized knowledge" is something I could closely relate to. For example, doctors have been using "specialized knowledge" to confuse and fleece patients. However the Internet has been a major liberator from such "experts" since much of the "specialized knowledge" is publicly available. We also tend to overestimate the "specialized knowledge" available with "experts".
The book also has a bonus matter section with additional questions and analysis. This sections explore questions such as why we vote and the economics behind gift cards. This section is followed by a Q&A session with the authors.
I personally think that one of the biggest contributions of this book is that it forces people to be critical of the things that are pushed to them as good or as essential. For example, take the case of vaccinations (this example is NOT from the book). It is almost always projected as good thing. But in reality, there is a trade off to be made between the known and unknown side effects of a vaccine against the risk of contracting a specific disease. If there is a 1% chance of contracting a specific disease and in contracted patients if there is 1% chance of death, is vaccination against that disease worth the 0.1% side effects and the possible long term impact on health?
Take another example of global warming or tree conservation (again NOT from the book, however a new book named Superfreakonomics seems to address these topics). Both these are given much more importance than they actually need. It is always important to ask the question, who actually benefits from the scare of global warming or the scarcity of cheap raw material such as wood (trees) which can be easily replenished?
One of my favourite chapters is the one dealing with parenting. I see parents all around me who try everything in their power to make their children better. I have always suspected that parenting has a lesser influence on a child than his genes and his peer group. It appears that what matters in the case of a child is how parents live/what parents are NOT what parents do!
Freakonomics is an interesting read. The authors have done a good job in making even the statistical part seem interesting. The book encourages us to be alert on what we do and what others do and look for reasons behind it.
The Q&A section at the end contains a pretty argument as to why you should read this book!,
Q: Am I worse off for never having read Freakonomics? – Terry
A: Sadly, yes. Independent testing has shown that people who read Freakonomics have sweeter-smelling breath, better posture and more interesting dreams. Also women feel no pain during childbirth; male readers find that their sperm swim faster.
My Rating: 8/10. An excellent book of interesting problems and interesting trivia. If you are a blind follower of "experts", this is an eye opener!