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From Zero to One: Blake Masters Talks Startups and Building the Future

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Joining host Kelly Scanlon is Blake Masters, co-author of the best-selling book Zero to One: Notes on Startups, Or How to Build the Future. 

Listen in as Masters discusses how his former university instructor, legendary entrepreneur and investor Peter Thiel,  believes we can learn to think for ourselves, find ways to create new things (rather than replicate what we already know), and change our future.

Blake was a student at Stanford Law School in 2012 taking a “Computer Science 183: Startup” class instructed by EBay co-founder Peter Thiel (who was also the first outside investor in Facebook). Blake started posting his notes online, and they became an internet sensation before becoming the book to Zero to One.

Before writing Zero to One with Peter, Blake co-founded Judicata, a legal research technology startup, and worked at Box and Founders Fund.

Transcript

0:35 Kelly Scanlon

Good morning. Welcome to Smart Companies Radio. I am Kelly Scanlon, publisher of Thinking Bigger Business Media. Our guest today is Blake Masters. Blake is the co-founder of Judicata, a legal research technology startup and he is also the co-author of a popular book called Zero to One: Notes on Startups, Or How to Build the Future. Blake was a student at Stanford Law School in 2012 when his notes on Peter Thiel's class became an internet sensation. We are going to talk about that in a minute, but in case you don't recognize Peter's name, he is the co-founder of PayPal and he was the first outside investor in Facebook. Blake's here to talk to us today about the book, Zero to One. Welcome to the show today, Blake!

1:19 Blake Masters

Hey! Thanks for having me, Kelly.

1:21 Kelly Scanlon

Yes. Now, as I mentioned, you co-wrote Zero to One with Peter Thiel. Now, give us the background on that. I said that you were a student in his class, but how did that turn into a book, you being in his class and then, what happened between that and the book being produced?

1:36 Blake Masters

Yeah. There's actually a little bit of pre-history. It wasn't the first class that I'd taken with Peter. So, my second year in Law School in 2011, Peter came and taught a seminar, I think it was called Sovereignty, Technology and Globalization, but it was a really cool class, you know, he'd have us reading Machiavelli one week and then talking about peak oil theory next week, you know, talking about China the week after that, so it's kind of this eclectic assortment of everything that was on his mind. And it all sort of started to integrate and make sense and you got the sense that Peter was kind of a really unique and special thinker, but as cool as the class was, I can't tell you anymore about it because I don't remember. I didn't take any notes. That was my habit all through college and law school. I'm not a big note taker, but Peter and I became friends and then I worked with him a little bit that summer at his Venture Capital Firm Founders Fund and so when he was thinking about teaching this next class, the class on startups, he emailed me and told me to keep an eye out for in case I might want to take it. So, I decided to take it and, you know, it was the last class I ever took at Stanford, but this time, I was sure from, you know, from class number one to take really detailed notes.

2:53 Kelly Scanlon

Uh hmm.

2:54 Blake Masters

So, that was sort of the input is for the project and then, you know, once I have these notes, I was looking at them and started saying, "Well, gee, it's kind of a shame if nobody outside of the classroom gets to read these thoughts and learn from them." So, I decided to kind of take a gamble and post them online.

3:11 Kelly Scanlon

Ah. So, you posted them online and full attribution I am sure to Peter?

3:16 Blake Masters

Yeah, yeah. There was no, you know, and I think I said like, you know, credits for all the good ideas, that's to Peter but, you know, mistakes, errors and omissions are mine. So, it's clear exactly what they were, but it's totally true. I didn't check in with him beforehand or anything like that.

3:33 Kelly Scanlon

And then somehow, how did the book come about though?

3:37 Blake Masters

Well, the notes became really popular. You know, I thought a few hundred in Silicone Valley might be interested in hearing this stuff, kind of filter it through a random student's blog, but it turns out they were wildly popular. Within a year, they had like 500,000 unique visitors and over a million page views and so sort of everybody, you know, Marc Andreesen, a really prominent venture capitalist out here in Silicon Valley has said, pretty much everybody who comes to pitch him for money, for his or her startup, has read the notes. So, it really became this kind of Silicon Valley phenomenon where everybody was reading these notes I said and discussing them. And then, so we thought that was really cool. We also knew or we knew two things, one, that we could make the writing just a lot better. You know, I mean, this is stuff I took down in class and then lightly edited and so we knew we could make a lot better product, you know...

4:35 Kelly Scanlon

Uh hmm.

4:36 Blake Masters

For the best presentation of these ideas. And two, we knew that even in 2014, as influential as blogs and social media are, there's nothing really better than writing a book to both clarify your own thinking and also to start a wider cultural conversation. So, we knew the notes did not yet reach everyone we wanted to speak to and you know, so we started talking with some New York publishers and just to try to make the biggest splash as we could.

5:04 Kelly Scanlon

So, we have the book Zero to One. What does zero to one mean?

5:10 Blake Masters

Yeah. So, zero to one means in our sort of taxonomy, doing new things. We contrast it with going from one to N, which is copying more of what already exists. And so, one way to look at it, we say, zero to one means technology. You do something new, you do it for the first time, you do more with less whereas one to N means globalization. So that's where you take something that's worked in the west and you sort of make it work in all sorts of emerging countries by different context, and you know, to have a good 21st Century, we are going to have to have both technology and globalization, both types of progress. We wrote Zero to One because we think that when people talk about progress, we conflate it with globalization, we pretend sort of by default that the only way to make progress is to spread what we already know how to deal.

6:03 Kelly Scanlon

Right.

6:04 Blake Masters

What we want Silicon Valley to be about, what we want, you know, the whole generation, new business to be about, is really doing something new, something sort of transcendent that the world has never seen before.

6:14 Kelly Scanlon

Right. And I believe in the book you used China as an example of the globalization that they're replicating what's worked in the west, they're trying to have all that recur in China, and you also talked about horizontal versus vertical growth and that you're really talking about the same thing. Right?

6:31 Blake Masters

Right.

6:32 Kelly Scanlon

When you talk, zero to one. Horizontal growth would be globalization. Vertical growth would be the technological innovation.

6:37 Blake Masters

Yeah, exactly. So many people talk about China and you know, it's always this, from the American perspective, there's always this, seems like there's this pervasive fear that wow, China is growing at 10% a year, you know, we're all growing at 2% maybe 3% in a good year. This is really bad, China is going to overtake us. But it is easy to forget that China can grow so fast only because it's starting days are so low. They don't really have to worry about innovation, you know, for the next 10, 15, 20 years. They really do just have to copy what has worked in the west.

7:09 Kelly Scanlon

Right.

7:10 Blake Masters

And that's sufficient to grow. You know, what Western Europe, what the US, what Japan have to worry about is actually doing something new. So, you know, from our perspective over here, it's, you know, there's nothing to copy, you know.

7:23 Kelly Scanlon

Uh hmm.

7:24 Blake Masters

If you live in a developed world so to speak, you really have to look for all these opportunities to go from zero to one if you're trying to want to take things the next level.

7:32 Kelly Scanlon

Right. You know, the new and improved cheerios or cornflakes doesn't cut it by adding berries to it, then that's not what you're talking about here.

7:40 Blake Masters

Right. It maybe nice, you know, maybe some people should be working on that. But, if in this society we sort of default to just doing things like that, then we'll be in a lot of trouble.

7:51 Kelly Scanlon

So, at the root of one of the book's most controversial messages is the advice that you give entrepreneurs and that that they should avoid competition wherever possible and instead they should aspire to be monopolists. Now, is that really as black and white as it sounds?

8:09 Blake Masters

Ah, well, yes and no. There is a sense in which we're being intentionally provocative, ah, we're sort of taking these labels that people use in what context and we're pointing out sort of a more sane context for them. So, competition, Americans really like, you know, we're competitive, we like, we can conflate competition with free market capitalism and some sense of your anti-competition, you know, conjures up images of sort of you know, smoke-filled rooms and monopolists plotting against the people or the government sort of keeping, you know, entrance out of a market, all of which we know to be bad. What we mean when we say competition is that, you know, if you're competing, you have a referent competitor, you're always defining what you're doing in relation to somebody else. But the best, most transformative companies are sort of so different and so unique that they wind up escaping competition. They're not worried about what the other person is doing. They're worried about whether what they're doing is technically possible or how they're going to do it and so what we say to entrepreneurs is you want to be a monopoly, you want to do something so unique and so good that nobody else can hope to do the same thing. You know, one of the definitions or examples we give is Google...

9:24 Kelly Scanlon

Uh hmm.

9:25 Blake Masters

Which in the late 1990s, __9:28__ market was really competitive, sort of Lycos and Alta Vista and then there was Yahoo and Microsoft, and they were all just sort of okay. And then Google comes along with each Pigeon algorithm, built a whole great company around the search engine that is just so much better than anybody and so now I think Google has like 70% of the US market share, it seems like more than that, but Google, for all practical purposes, has a monopoly. There's nobody that can compete with search and Google and that's been really, it's been great for Google, of course, but it's been really good for the world too because there's just, now we have, it's a new category of abundance, you know, a search engine that works. So, from a business perspective, you always want to be a monopolist, sometimes that's even good for society at large, at least in a dynamic economy. But what we tend to do in business and everything, 'cause this is part of human nature, is we tend to look at what other people are doing then we tend to copy it. And so, it's always worth remembering the dynamic because we're sort of all guilty of falling into it.

10:28 Kelly Scanlon

Yes. And I think you call it, I'm gonna botch the word, but I think you call it the "mimicus" or there's some, you know, where you mimic. Ah, there's and you have the term...

10:38 Blake Masters

Yeah, yeah. Mimesis, mimetic phenomena.

10:41 Kelly Scanlon

Right.

10:42 Blake Masters

You know, it's like, already in the time of Shakespeare. The word "ape" meant both primate and to imitate.

10:48 Kelly Scanlon

Hmmm.

10:49 Blake Masters

So, this is, you know, sort of mimetic dynamics or competitive dynamics. They're part of human nature. It's actually, you know, I mean, hey, that's how babies learn languages...

10:59 Kelly Scanlon

Yes.

11:00 Blake Masters

They look at what parents are doing and they sort of ape them. It's how culture is transmitted. So, it's not all bad. I mean, it is just a fact of life, but it really can, I mean, blind people to you know, new sources of value, new ways of doing things, you know, it's like Peter did point kind of a funny little point here but so many of these tech entrepreneurs in Silicon Valley that have really cool companies seem to suffer from like a mild form of Asperger's, you know, and we always like to flip this around and turn it into an indictment of society, what does it say about society when socially well-adjusted people, when people who don't have Asperger's wind up having all their original thoughts sort of, you know, driven out of them before they're even fully formed? Because if you are well-adjusted, you know, you have kind of a crazy idea you're going to pick up on all these subtle cues with people, oh that idea is too crazy, you know, you shouldn't do that, you should do something more safe, and so if you think of like a Harvard Business School as the anti-Asperger's crowd, you know...

12:12 Kelly Scanlon

Sure.

12:13 Blake Masters

These are people with extreme extrovert, you know, very good at sales, and they kind of sit in a hot house environment for two years, they don't know what to do so they talk about, you know, with each other what are we going to do and it's kind of funny because there this, you know, like every sort of year, the biggest crop of people at Harvard Business School tends to go into like the wrong field. They try to catch the last wave because that's popular.

12:37 Kelly Scanlon

Uh hmm. Sure.

12:39 Blake Masters

...they wanted to work with Michael Milken, you know, the Junk Bond King before he went to jail...

12:42 Kelly Scanlon

Yes.

12:43 Blake Masters

They never cared about technology until, you know, '99, 2000 when they topped the, they call the top of the dot com bubble perfectly, in 2005, it was all private equity and real estate and then that sort of crashed and so if we just look at what other people are doing, you know, on the one hand that is what people do. On the other hand, that's what created all sorts of bubbles and psychosocial phenomenon, but if you wanted to do a really good company, you know, like an __13:12__ or Facebook, you can't just look around at what other people are doing and then try to make a better version. You really have to be sort of independent enough intellectually, independent enough socially to go and actually think that you've got some niche and it doesn't have to be popular but what you're going to make a great company out of it.

13:30 Kelly Scanlon

Exactly. It might take a little while for it to catch on because it's not popular and because you might have to educate people a little bit, but long term, you've created something entirely different. We're going to take a quick break. When we get back, we're going to be talking with Blake about some of the other ways of thinking that produces innovative environment. You're listening to Smart Companies Radio on Blog Talk Radio. We'll be right back.

15:24 Kelly Scanlon

Good morning. Welcome back to Smart Companies Radio. I'm Kelly Scanlon, publisher of Thinking Bigger Business Media. We're visiting here today with Blake Masters who is the co-author along Peter Thiel of Zero to One: Notes on Startups, Or How to Build the Future, and we've been talking about the types of innovations that are needed in order to create our future as opposed to just replicating things that are already working or things that are already successful. And one of the things I like about your book besides just the content in general is that you have really fun chapter titles. One of those is that "You're not a Lottery Ticket." What the heck does "lottery" have to do with what we're talking about here today?

16:08 Blake Masters

Yes. I think that one of the biggest questions in business is always, how much can you actually plan? How much can you set out to succeed and then succeed? Or, you know, how much of it is just luck? So, if you could just sort of say, oh Zuckerberg won the lottery, you know, and if this incredible constellation of facts and events didn't happen and if he wasn't rooming with Eduardo at Harvard or if his girlfriend didn't dump him that night, he would never have created this business or Bill Gates, you know, didn't grow up with Paul Allen maybe he never would have started Microsoft and so, this lottery ticket chapter is our sort of, you know, contribution to this luck versus skill question. I think on the whole, we have at the society, you know, in the last 30, 40 years, really come down hard on the side of luck. We prefer to explain things at least largely, if not predominantly in terms of chance, in terms of statistics, in terms of luck, and I think we underweigh the importance of planning in skill and design. And I do think this is a big culture so you, 100 years ago in business, people knew that misfortune existed but you never focused on it. It was always okay, you could get unlucky, but hey, let's carve out this fear of you know, mastery that we can achieve and let's get it done. And today, I don't know if it's part of this, you know, inequality debate or resentment, sort of life being in equality but there is a sense in which people are rushing to sort of say you can't know anything in advance, it is all another block, we have sort of the lean startup phenomenon which is sort of adjacent to all that entrepreneurs are never suppose to know in advance what they're companies are going to do. You have to make a minimum viable product, sort of iterate your way to success. It's all very indefinite.

18:04 Blake Masters

And so we think, you know, the society certainly as a business person. It's imperative to have a definite attitude and kind of correct more in that direction.

18:16 Kelly Scanlon

You know, this isn't exactly the same as what you're talking about but I think it goes hand in hand in terms of what determines people who can think like Steve Jobs or Zuckerberg and that is education. Can this kind of thinking be taught? And obviously it's not luck, you've talked about that, but can it be taught?

18:36 Blake Masters

You know, it probably can't be taught in the way that we, in the way that we first think of when we talked about teaching something. I think when we talk about, you know, teaching today or school today, what we're really doing is like teaching the need to be taught about everything, which is to say like I think in a lot of ways, you know, school is one to N. It's taking its set of conventional crew and it's imparting them, you know, onto sort of impressionable mind. It's not about teaching people how to think even though that's the, you know, go-to kind of cliché that's used to describe higher education. You can't teach this perspective any more that you can, you know, teach someone to be creative. What you can do is set up a culture where that's what's going on. You know, so in the past, you know, back when the government was definite, you got Apollo and you know, you got the Interstate Highway System, you got the Manhattan Project. Today, we can even build, you know, the affordable healthcare act website.

19:41 Kelly Scanlon

Right. A great example. Yeah.

19:45 Blake Masters

So, so, you know, you can teach somebody all these skills but it's really hard to teach someone or even teach a set of people, you know, the importance of being definite 'cause it's hard to know what that would look like. It really is an attitude. Some people are always going to have it even in indefinite climate. You have Steve Jobs-type figures, you know, not enough of them, but you do have them, and so I think it is worth asking where is this coming from, why are we seeing it, you know, so rarely? And is there something about our schooling system that's actually beating out all sorts of definite perspectives, all sorts of kind of crazy ambitions out of people, you know, so that they may be, you know, more homogenous and kind of fit in to existing institutions more cleanly.

20:33 Kelly Scanlon

One of the things that you bring up in your back was all technology that, you know, there's all this buzz about technology as there should be, but one of the things that is coming out of that is that eventually, we won't to send people to the workplace because we will have machines or we'll have robots or we'll have avatars or whatever it is doing all of these things for us and people will rise to some higher plane I suppose and do things that are more meaningful than work everyday. What do you think about that? You think we'll see a time like that?

21:05 Blake Masters

Probably not just like that. I mean, I think there's always going to be plenty of work for humans to do. Our sort of cut on this is, you know, most people think, most people kind of approach these debates from a mildly fearful perspective so it's kind of like, is the robot going to take my job? Am I safe or am I in the class that at least is going to be a few decades away from being replaced? And actually I think if you were worried about being replaced, you should worry about other people because if you think in terms of sort of economic term's comparative advantage, comparative advantage is huge when people are really different. You know, so if you're really good at making shoes and I'm really good at you know, hunting or something like that, then we have a huge advantage if you focus on shoes and I focus on the hunt, and then we trade. If we're kind of the same at everything or maybe you're just a little bit better at making shoes than I'm hunting, there's a huge advantage to trade and so, when you look at the global population of human workers who are like willing to do repetitive tasks for low wages, well, you know, Chinese or Indians really can substitute for Americans in that sense. And so I think you have, you know, with globalization, you have enormous pressures on the job market and displacement. We've seen some of that over the last 20 years but now, kind of people are projecting that whole globalization debate onto technology, onto computers, kind of pretending that computers now are the low-wage substitutes of the future and I think that's mistaken because unlike humans which really can substitute for each other in the labor market, computers are just so different from people. So, it's true that maybe, you know, you don't have as many bank tellers now, because ATMs came along.

22:56 Kelly Scanlon

Uh hmm. Right.

22:57 Blake Masters

You know, plenty of humans do things that computers can do but humans can also do things that computers just can't and probably never can. So, you have actually more people working in the banking industry now than when there are bunch of human tellers because now you have all sorts of, you know, banking consultants and brokers, you know, lenders, things like that, no computer is ever going to do that and because humans are just so different, you know, we're good at kind of integrating things across multiple disciplines, you know, we're good at making judgment...

23:28 Kelly Scanlon

Yeah.

23:29 Blake Masters

...of all sorts that computers can't do and computers are really good at sort of raw crunching of math data, actually think, you know, computers are going to help people do a lot more things, a lot more interesting things, and so I wouldn't see them as threat, I'd kind of see them as friends and then the question is what new class of businesses, you know, are going to be built in the next 10, 20, 30 years that are really going to bring out those distinction.

23:54 Kelly Scanlon

Right. And I usually ask these questions as if we were on the air but I'm going to ask this question, we've only got a couple minutes left so you'll have to keep your answer really short. I just want to make sure we get this in there. Okay?

24:06 Blake Masters

Okay.

24:07 Kelly Scanlon

Okay. You talk about the founders paradox, what is that?

24:11 Blake Masters

Well basically, founders are really weird. They're weird people...

24:16 Kelly Scanlon

Tell me about it. (Laughs)

24:17 Blake Masters

It takes a certain class of crazy to go and start a business, you know, whether it's kind of a small business, Brick and Mortar or whether it's a big tax business. And the paradox is that, you know, founders can be revered, you look at sort of Steve Jobs, that they can have, they can inspire the sort of personality cult, they can be totally just adulated and worshipped by the crowd and that very same dynamic is what makes it dangerous to be a founder because at the drop of the hat, you know, if something goes wrong in a company, all founders become scapegoats. I think the scapegoat mechanism is really powerful in our society and we saw this with Apple, you know, Steve Jobs founded it, it's the hottest computer company, they go public, he is a multimillionaire, well, then in 1985, he got tossed out, you know, because Apple needs adult supervision and we've seen how powerful, you know, the return of Steve Jobs was. There's all these questions about who started these businesses, whether they're strange or whether they'll become stranger, you know, by virtue of actually being in the organization that they're running but I think we just have to be tolerant of all sorts of strangeness among entrepreneurs because the strangest are usually, you know, in some weird life, the very best.

25:35 Kelly Scanlon

You know, I think you give several examples in your book of founders who had actually made bombs while they were in school before they became founders (laughs) so...

25:45 Blake Masters

Yes. And so maybe making bombs are I think great, you know, maybe no one encouraged that. But...

25:52 Kelly Scanlon

But eccentric behavior definitely, different ways of looking at things.

25:54 Blake Masters

There's something to it. There's something to it.

25:56 Kelly Scanlon

Yeah. One review I read of the book and it said that people should read this book even if they don't have the slightest interest in business. Why do you think the reviewer said that?

26:08 Blake Masters

Well, we really, you know, I mean, we give some business advice, some hardcore concrete, you know, blocking and tackling, but we're also talking about, hey, what's the future going to look like? What do we need to do to make it good? That's not just a question for managers of corporations or something like that. You know, we're inviting people to think, what is it that's made the US singular and sort of exceptional in its short history? What can we do to make sure that we don't just fall into, you know, tracks where we copy things that already exist. We get into this luck versus skill question that we talked about, society, you know, do whatever it can to get back to a more definite planning mindset, and we were talking about the future of energy and why that's one of the most important problems that anybody, whether you're in a non-profit context to business context should be thinking about. So, we really do try to, it's sort of, the metaphor I choose is "chess boxing", which is a real sport, you play a round of chess around in a boxing ring and then you go to a chess board, and you actually make a move. And so this, you know, thinking about things from this macro perspective that affects everybody and then drilling down to the micro of sort of managing a business, I think it's really important. So, hopefully, you know, even if you're not managing a business, the macro stuff is interesting enough to learn from and think about.

27:34 Kelly Scanlon

That's absolutely fascinating, Blake. You can get the book on amazon.com. Is that the best place to go?

27:39 Blake Masters

Sure, yeah, sounds good.

27:41 Kelly Scanlon

Okay. So, Zero to One: Notes on Startups, Or How to Build the Future, whether you're interested in business or not, you can get in on amazon.com. Blake, it's been wonderful chatting with you today and...

27:50 Blake Masters

It's really fun. Thanks for having me.

27:52 Kelly Scanlon

Good luck with the book.

27:53 Blake Masters

Thank you.

27:54 Kelly Scanlon

And if you'd like to learn more about how to grow your business, please visit our website at www.ithinkbigger.com, follow us on Facebook, Thinking Bigger Business Media or on Twitter @ithinkbigger. Have a great weekend. We will see you next week.

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