Zero To One by Peter Thiel

Summary

Be contrarian: think for yourself. In business it pays to: be a last-mover, dominate your niche, scale up, create a monopoly. We should celebrate bold founders. I found it useful at age 20, weak at age 30.

Key Takeaways

• Successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
• Interview question: “What important truth do very few people agree with you on?”
  • A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”
• The first step to thinking clearly is to question what we think we know about the past.
• And yet the opposite principles are probably more correct:
  • It is better to risk boldness than triviality.
  • A bad plan is better than no plan.
  • Competitive markets destroy profits.
  • Sales matters just as much as product.
• Ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes? 
• The most contrarian thing of all is not to oppose the crowd but to think for yourself.
• What valuable company is nobody building?
• Every business is successful exactly to the extent that it does something others cannot. Monopoly is the condition of every successful business.
• If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.
• Will this business still be around a decade from now?
• Proprietary technology must be at least 10 times better than its closest substitute.
• It’s better to be a last-mover. Dominate your niche, then scale up.
• The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.
• It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
• Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together.
• The best problems to work on are often the ones nobody else even tries to solve.

What I got out of it

What a difference age makes. I remember reading Zero To One when it came out in 2014 and I had just graduated and joined a startup. At the time, it blew me away: the thinking in the book was unlike anything I had heard or studied until then.

Fast-forward 8 years (2022), being more well-read and with more life experience, I found the book…shallow. I also, now, felt that Thiel paints a picture of X or Y, giving the reader the impression the world is binary (which it’s not). Even more so, it gives the impression that one has to CHOOSE…while I’m of the belief that many of the points Thiel raises are either joined at the hip, not mutually exclusive or not related in the way he makes them sound.

I found the book lacking practicality, while being overshadowed on the philosophical/rational side by books such as Antifragile or Seeking Wisdom (not to mention works from ancient Greece/Rome or the Renaissance).

That is not to say the book is completely without merit: throughout the book Thiel shares questions he would ask himself and others in certain situations. I found these to serve as good thought experiments. The ones that stood out to me:

• What important truth do very few people agree with you on?
• How much of what you know about business is shaped by mistaken reactions to past mistakes?
• What valuable company is nobody building?
• Will this business still be around a decade from now?
• Are there any fields that matter but haven’t been standardized and institutionalized?
• Is it a matter of chance or design?

Summary Notes

Preface – Zero To One

Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

This book offers no formula for success. The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

The Challenge Of The Future 

Whenever I interview someone for a job, I like to ask this question: “What important truth do very few people agree with you on?”

A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”

Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things— going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.

At the macro level, the single word for horizontal progress is globalization— taking things that work somewhere and making them work everywhere.

The single word for vertical, 0 to 1 progress is technology. The rapid progress of information technology in recent decades has made Silicon Valley the capital of “technology” in general. But there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more.

Party Like It’s 1999 

Our contrarian question—What important truth do very few people agree with you on?—is difficult to answer directly. It may be easier to start with a preliminary: “what does everybody agree on?“

The first step to thinking clearly is to question what we think we know about the past.

The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:

1. Make incremental advances
2. Stay lean and flexible
3. Improve on the competition
4. Focus on product, not sales

These lessons have become dogma in the startup world; those who would ignore them are presumed to invite the justified doom visited upon technology in the great crash of 2000. And yet the opposite principles are probably more correct:

1. It is better to risk boldness than triviality.
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Sales matters just as much as product.

To build the next generation of companies, we must abandon the dogmas created after the crash. That doesn’t mean the opposite ideas are automatically true: you can’t escape the madness of crowds by dogmatically rejecting them. Instead ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.

All Happy Companies Are Different 

The business version of our contrarian question is: what valuable company is nobody building? This question is harder than it looks, because your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create.

The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly.

So-called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand.

Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.

Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.

If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother’s recipe—your business is unlikely to survive.

Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets; Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.

In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

The dynamism of new monopolies itself explains why old monopolies don’t strangle innovation.

Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Then monopolies can keep innovating because profits enable them to make the long-term plans and to finance the ambitious research projects that firms locked in competition can’t dream of.

In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.

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.

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

Competition can make people hallucinate opportunities where none exist.

Winning is better than losing, but everybody loses when the war isn’t one worth fighting.

If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.

Last Mover Advantage 

Escaping competition will give you a monopoly, but even a monopoly is only a great business if it can endure in the future.

If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now?

Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.

This isn’t a list of boxes to check as you build your business—there’s no shortcut to monopoly. However, analyzing your business according to these characteristics can help you think about how to make it durable:

1. Proprietary Technology
2. Network Effects
3. Economies of Scale
4. Branding

As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.

The clearest way to make a 10x improvement is to invent something completely new.

No technology company can be built on branding alone.

Every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: 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.

Sequencing markets correctly is underrated, and it takes discipline to expand gradually. The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

If you truly want to make something new, the act of creation is far more important than the old industries that might not like what you create. Indeed, if your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

Moving first is a tactic, not a goal. What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you. It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.

You Are Not A Lottery Ticket 

When we debate historical questions like these, luck is in the past tense. Far more important are questions about the future: is it a matter of chance or design?

You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.

Indefinite attitudes to the future explain what’s most dysfunctional in our world today. Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options.

A definite view, by contrast, favors firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one.

Optimists welcome the future; pessimists fear it. Combining these possibilities yields four views:

• An indefinite pessimist looks out onto a bleak future, but he has no idea what to do about it.

The whole Eurozone is in slow-motion crisis, and nobody is in charge. The European Central Bank doesn’t stand for anything but improvisation: the U.S. Treasury prints “In God We Trust” on the dollar; the ECB might as well print “Kick the Can Down the Road” on the euro. Europeans just react to events as they happen and hope things don’t get worse.

The indefinite pessimist can’t know whether the inevitable decline will be fast or slow, catastrophic or gradual. All he can do is wait for it to happen, so he might as well eat, drink, and be merry in the meantime.

• A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it.

• To a definite optimist, the future will be better than the present if he plans and works to make it better.

• To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely. Instead of working for years to build a new product, indefinite optimists rearrange already-invented ones.

In an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possibly do with it. Only in a definite future is money a means to an end, not the end itself.

Iteration without a bold plan won’t take you from 0 to 1. A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen?

Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.

A business with a good definite plan will always be underrated in a world where people see the future as random.

A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.

Follow The Money 

The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.

This implies two very strange rules for VCs: 

1. Only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. (Even quite successful companies usually succeed on a more humble scale.)
2. Because rule number one is so restrictive, there can’t be any other rules.

It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.

Contrarian thinking doesn’t make any sense unless the world still has secrets left to give up.

There are many things we don’t yet understand, but some of those things may be impossible to figure out—mysteries rather than secrets. For example, string theory describes the physics of the universe in terms of vibrating one-dimensional objects called “strings.” Is string theory true? You can’t really design experiments to test it. Very few people, if any, could ever understand all its implications. But is that just because it’s difficult? Or is it an impossible mystery?

The difference matters. You can achieve difficult things, but you can’t achieve the impossible.

Along with the natural fact that physical frontiers have receded, four social trends have conspired to root out belief in secrets:

1. Incrementalism. From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade.
2. Risk aversion. People are scared of secrets because they are scared of being wrong. By definition, a secret hasn’t been vetted by the mainstream.
3. Complacency. Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done?
4. “Flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already?

If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.

We will never learn any of these secrets unless we demand to know them and force ourselves to look.

Only by believing in and looking for secrets could you see beyond the convention to an opportunity hidden in plain sight.

There are two kinds of secrets: 

• Secrets of nature 
• Secrets about people. 

Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?

The monopoly secret again: competition and capitalism are opposites.

The best place to look for secrets is where no one else is looking. So you might ask: are there any fields that matter but haven’t been standardized and institutionalized?

Foundations 

“Thiel’s law”: a startup messed up at its foundation cannot be fixed.

When you start something, the first and most crucial decision you make is whom to start it with.

Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice.

To anticipate likely sources of misalignment in any company, it’s useful to distinguish between three concepts:

• Ownership: who legally owns a company’s equity?
• Possession: who actually runs the company on a day-to-day basis?
• Control: who formally governs the company’s affairs?

A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.

As a general rule, everyone you involve with your company should be involved full-time. 

Cash is attractive. It offers pure optionality: once you get your paycheck, you can do anything you want with it. However, high cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future.

Since it’s impossible to achieve perfect fairness when distributing ownership, founders would do well to keep the details secret.

Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future. Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned.

If you get the founding moment right, you can do more than create a valuable company: you can steer its distant future toward the creation of new things instead of the stewardship of inherited success. You might even extend its founding indefinitely.

The Mechanics Of Mafia 

“Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture. A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.

Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. 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.

Why would someone join your company as its 20th engineer when she could go work at Google for more money and more prestige?

The only good answers are specific to your company, so you won’t find them in this book. But there are two general kinds of good answers: 

• Answers about your mission
• Answers about your team

You’ll attract the employees you need if you can explain why your mission is compelling: not why it’s important in general, but why you’re doing something important that no one else is going to get done. That’s the only thing that can make its importance unique.

However, even a great mission is not enough. The kind of recruit who would be most engaged as an employee will also wonder: “Are these the kind of people I want to work with?” You should be able to explain why your company is a unique match for him personally. And if you can’t do that, he’s probably not the right match.

From the outside, everyone in your company should be different in the same way.
On the inside, every individual should be sharply distinguished by her work.

The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism. More than that, internal peace is what enables a startup to survive at all.

If You Build It, Will They Come? 

Two metrics set the limits for effective distribution. The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value, or CLV) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost, or CAC).

Businesses with complex sales models succeed if they achieve 50% to 100% year-over-year growth over the course of a decade.

In between personal sales (salespeople obviously required) and traditional advertising (no salespeople required) there is a dead zone.

This is why so many small and medium-sized businesses don’t use tools that bigger firms take for granted. It’s not that small business proprietors are unusually backward or that good tools don’t exist: distribution is the hidden bottleneck.

Marketing and advertising work for relatively low-priced products that have mass appeal but lack any method of viral distribution.

A product is viral if its core functionality encourages users to invite their friends to become users too.

Man And Machine

We have let ourselves become enchanted by big data only because we exoticize technology. We’re impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the human contribution makes them less uncanny.

The most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?

Seeing Green 

Most cleantech companies crashed because they neglected one or more of the seven questions that every business must answer:

1. The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
2. The Timing Question: Is now the right time to start your particular business?
   • Entering a slow-moving market can be a good strategy, but only if you have a definite and realistic plan to take it over.
3. The Monopoly Question: Are you starting with a big share of a small market?
4. The People Question: Do you have the right team?
5. The Distribution Question: Do you have a way to not just create but deliver your product?
6. The Durability Question: Will your market position be defensible 10 and 20 years into the future?
   • Every entrepreneur should plan to be the last mover in her particular market. That starts with asking yourself: what will the world look like 10 and 20 years from now, and how will my business fit in?
7. The Secret Question: Have you identified a unique opportunity that others don’t see?

The Myth of Social Entrepreneurship

The ambiguity between social and financial goals doesn’t help. But the ambiguity in the word “social” is even more of a problem: if something is “socially good,” is it good for society, or merely seen as good by society? Whatever is good enough to receive applause from all audiences can only be conventional, like the general idea of green energy.

Progress isn’t held back by some difference between corporate greed and nonprofit goodness; instead, we’re held back by the sameness of both.

Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.

An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale.

No matter how much the world needs energy, only a firm that offers a superior solution for a specific energy problem can make money. No sector will ever be so important that merely participating in it will be enough to build a great company.

The Founder’s Paradox 

A unique founder can make authoritative decisions, inspire strong personal loyalty, and plan ahead for decades. Paradoxically, impersonal bureaucracies staffed by trained professionals can last longer than any lifetime, but they usually act with short time horizons.

The lesson for business is that we need founders. If anything, we should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.

Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at his company.

Conclusion 

Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1. The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both recreate it and preserve it for the future.