One of the most interesting books I’ve read so far this year was Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel. Peter Thiel is one of the founders of PayPal and is now a multi-billionaire who runs his own investment bank.
After cofounding PayPal and then selling it for billions to eBay, Peter is on a mission to find and invest in companies that have the potential to become really big. He also wants to understand what forces are responsible for the growth of some companies from nothing to billions of dollars.
He asks two questions throughout the book: why do some companies create value and grow so rapidly? And how do you build more of these kinds of companies?
Many of us take for granted companies like PayPal, eBay or Airbnb. But even with all their faults, they became mega-successful because they allowed us to do things that we couldn’t do before.
Before eBay, it wasn’t easy to sell something you owned to someone who wanted to buy it at a discount. Before PayPal, sending money to another person was a tedious and confusing task. Today, selling anything to anyone and securely collecting money for it is done with a few mouse clicks.
eBay, PayPal, Airbnb and similar companies became “overnight” successes for one reason only: they built a marketplace that enabled many people around the world to connect and transact things in ways they couldn’t do before.
When a company transforms from essentially nothing to a service that people can’t imagine living without, that company goes from “zero to one.”
One day, booking an apartment in Moscow from your San Francisco house is a tedious and confusing process, the next day it’s as easy as ordering from your local Domino’s Pizza.
One day, you’re dreading a trip to Bogota, Colombia because you’re afraid of taking a random taxi from the airport to your hotel. The next day, hailing a taxi in a foreign country is as simple and secure as as ordering a Big Mac at your local McDonalds.
I remember how nervous I was ten years ago when I was boarding a flight from Mexico City to Bogota, Colombia. Back then Colombia wasn’t a country many people visited so I was nervous about the visit. But the most frightful thing was needing to trust some random taxi driver to deliver me safely to my hostel.
That’s no longer an issue thanks to companies like Uber. Taking a taxi in Bogota, Bali or Kuala Lumpur is as simple as taking one to your home in San Francisco or New York.
As a result of commoditizing taxi services around the world and instilling trust with it, Uber grew from zero to one of the most valuable private companies in the world.
Going from zero to infinity
This “zero to one” is one of the most powerful forces in the universe. It’s also not just applicable to a few lucky startups. It automatically comes into play the moment you begin interacting with lots and lots of people, like selling a products or services to a large market.
This law is also one of the biggest—if not the biggest—perks of being an entrepreneur and doesn’t apply when you’re creating fixed value for someone else as an employee.
As many of you know, I was a software developer in my former life. I spent around a decade in Silicon Valley, where I worked for all kinds of companies, big and small.
My daily routine was to come into an office, sit at my desk and punch different symbols on the keyboard. These instructions were later interpreted and processed by the computer to hopefully do meaningful things.
Sure, I built all kinds of apps that were used by millions of people. It felt great being able to affect so many people’s lives.
The problem was that I wasn’t compensated in direct proportion to how many people were using this software. I was only compensated by the number of hours I was working — and not by how many people were getting value from my work.
I was not going from “zero to one.” I was simply stuck at “zero.”
All of that changed when began building businesses. While I enjoy wearing lots of hats, one of the most enjoyable parts of my work is marketing. I run different campaigns on a daily basis. These campaigns promote different products and services. Each campaign also has a clearly defined objective.
Although each campaign has lots of different numbers associated with it, I only pay attention to one number in one column. It’s the only number that signifies whether this particular campaign will make me rich or will bankrupt me if I don’t turn it off quickly.
It’s a number that has a direct influence on my happiness and well-being. If the number is high, it means I’m making good money and life is good. If the number is low, it means I’m doing something wrong and would need to fix it before I go completely broke.
It’s a number that forced me to become a numbers guy for the first time in my life—and I’ve always hated and sucked at math. It’s the first number that I look at in the morning and the last number that I check before going to sleep.
It’s the only number that really matters because it’s the only number that signifies if I’m on track to go from zero to one.
That number is called ROI, which stands for return on investment.
ROI is everything. If it’s reasonably high, it means I’m making more money than I’m putting in. If it’s low, it means I’m making less money than I’m putting in. It’s a simple process of money in, money out.
Life is a series of campaigns
In many ways, this little number is above and beyond money or campaigns or marketing. At the core, it’s a representation of value.
First, it immediately tells you the relationship between the value you’re putting in and the value you’re getting back in return. It quantifies your time and energy.
Second—and this is very important—it’s a number that can be controlled and optimized. It’s not a variable that’s edged in stone; you can tweak and improve it. Imagine having the ability to fine-tune your own engine for maximum performance. If you properly tune it, you will create wealth and enjoy a much higher standard of living. If you neglect it, then all of your time and energy on that particular endeavor is wasted.
Not everyone has access to this powerful number. In fact, most people don’t even know it exists. For the 99% of the people on this planet who have regular 9-5 jobs, there’s a 1:1 relationship between their work and compensation, between their input and output. Their ROI is fixed and will remain fixed for the rest of their lives.
A typical person goes to work, does a bunch of tasks and then goes home. In exchange, they receive a compensation in the form of money. This compensation is static; it’s the same regardless if they shuffled a bunch of papers for three hours or built a product or service that improved the lives of billions of people.
When I worked at a software company, I worked for eight hours (usually more during product launches) and received a fix compensation. It didn’t matter that the software I built was used by hundreds of people in one city or millions of people in over 100+ countries, the salary that was deposited into my bank account was always the same.
That’s because a job has a static return on your time invested: hours worked = money made.
On the other hand, a business has variable returns on your time invested: hours worked = money made x variable (ROI).
A jobs have a direct relationship with value. A business have an exponential relationship with value.
Risk and reward
Entrepreneurship is not without risk. Most businesses fail. That’s a fact of life. It happens because the world is always busy optimizing for maximum returns.
Can you imagine living in a world if everything everyone did automatically resulted in exponential growth? If you started selling a product tomorrow and immediately began making $100 for every $10 spent? If you started an online business and made $100,000 in the first hour? Regardless if your product sucked and you had no idea how to build a business?
That’s precisely why it’s completely normal to fail when you first start. When you start, you don’t know what you’re doing. You’re entering an uncharted terrain and you don’t have the data and knowledge to know what works and what doesn’t. And without this data and knowledge, you can’t optimize that special number for anything, much less for exponential, life-changing returns.
After you do things for a while, you obtain valuable data that tells you what’s working and what isn’t. That allows you can make proper adjustments and just focus on what’s working. That’s how you isolate, optimize and ultimately figure out what truly works and what doesn’t.
That’s also why starting a business comes with a steep learning curve. The steep part represents the time spent learning when you have zero previous knowledge and experience. It’s there because when you’re starting out, you’re operating blind and learning what works and what doesn’t. It’s very painful and frustrating.
Then, once you climb it, the process reverses: you’re putting in increasingly less effort and enjoying more and more positive returns. In fact, the steeper the learning curve, the greater the potential for amazing returns.
That explains why people who can make $100/mo can easily make $1,000/mo and beyond. They’ve already gone through the frustrating period of learning what works and doesn’t. Once there, they threw out what didn’t work. The rest is about careful optimizing and scaling.
Choosing the right path
Entrepreneurship is a fancy word, but what it really boils down to is choosing a path in life that has the greatest potential to give you life-changing returns. It’s a contract you make with yourself where you give up a bit of stability and comfort for risk and unknown and possible high returns down the road.
Companies like eBay, PayPal, Uber, Dropbox just to name a few didn’t start out successful. In the initial stages, they underwent periods of experimentation where they learned what worked and didn’t. Then, once they figured out what kind of services people needed, they built and sold them and the rest is history.
The same applies to regular entrepreneurs and hustlers. Once you embark on the path of building and selling your own products and services, you will have a new arsenal of tools at your disposal. One of these will be ROI. It will be like a pulse, representing the how your value is affecting the people you’re trying to reach. Congrats, you now have a lever that you can ruthlessly optimize and get many times more output than you’re putting in.
The only other alternative is having a stable drip of income deposited into your bank account on a set schedule. There’s no experimentation, no optimization and no hustle. Indeed, that’s a preferred path for the overwhelming majority of the population.
But for those who want a bit more out of life and don’t mind tinkering with how their value is created, consumed and leveraged, there exists a different path. This is the path where large fortunes are made every hour of every day. That is, if one is willing to take their own life into their hands and ruthlessly optimize it for maximum performance instead of mindlessly cruising their entire lives on meaningless autopilot.