Peter Thiel’s Zero to One is a must-read for founders and aspiring entrepreneurs. There is no one recipe for success, but Pether Thiel writes about the specific frame of mind an entrepreneur needs to be in in order to build the future.
The book revolves around two types of progress: horizontal and vertical. We see horizontal progress everyday. It’s basically globalization - taking something and distributing it everywhere. Vertical progress is rarer and more difficult to achieve because it involves creating something that has never been done before. Peter Thiel calls vertical progress Zero to One.
What I found particularly useful and enjoyable about the book is Peter Thiel’s use of stories to accentuate his message. Advice is always useful, but seeing how it played out in PayPal or other companies across the world helped me understand how it played out in reality. This advice was wide ranging - avoid competition, execute on a unique secret, and what questions need to be answered before creating an enduring business.
Below I’ve written out my full notes from the book. It highlights what I think were the key points and quotations from every chapter. I’ve written these notes in a way that would help me ‘re read’ the book without actually doing so, and I hope it’s useful to you as well.
Chapter 1: The Challenge of the Future
Peter Thiels’s favorite 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.
Zero to One: The Future of progress
There are two types of progress: horizontal/extensive progress or vertical/intensive progress
- Horizontal progress is easy to imagine because we already know what it looks like
- Vertical progress is difficult because it means doing something nobody else has ever done.
Horizontal progress is the same thing as globalization - taking something that works and making it everywhere. Vertical progress involves taking something from Zero to One, and Peter Thiel calls that technology.
Chapter 2: Party like it’s 1999
The dot-com burst in 2000 taught investors four things (incorrectly):
- Make incremental advances
- Stay lean and flexible
- Lean = ‘unplanned’ –> planning is arrogant and inflexible, you ought to iterate and treat entrepreneurship as an agnostic experiment
- Improve on the competition
- Don’t create a new market, the only way to know if you have a real business is to start with an already exsiting customer
- Focus on product, not sales
It’s important to understand that Thiel comes from the perspective that the world needs new technology, and the only way to get that is to be bold and try to build a new future.
Chapter 3: All Happy Companies are Different
Business version of contrarian question: what valuable company is nobody building?
Creating value is not enough, you must be able to capture the value. He gives the example of airline companies and Google. Google can capture the value because they are a monopoly, airline companies compete with each other until the profits are gone - therefore not being ‘valuable’ companies.
To Peter, there are two types of companies: monopolist and non-monopolist. Both of these companies lie, but they lie in very different ways.
Monopolist Lies
Monopolists lie to protect themselves, so they try to pretend that they are a small fish in a much larger pond. Monopolists disguise their monopoly by framing their market as the union of several large markets.
Competitive Lies
The fatal temptation is to describe your market extremely narrowly (the only British restaurant in Palo Alto) so that you dominate it by definition. They exaggerate their distinction by defining their market as the intersection of various smaller markets.
In business, money is either an important thing or it is everything, depending on who you are. Monopolists can afford to think about other things than money, but non-monopolists can’t. To Peter Thiel, monopoly is the condition of every successful business. 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.
Chapter 4: The Ideology of Competition
Thiel believes we have glorified competition when all it does is encourage conformity. To him, the more we compete, the less we gain. There was one quote that was particularly telling to me: All Rhodes Scholars had a great future in their past.
Competition, not business, is like war: allegedly necessary, supposedly valiant, but ultimately destructive. He gives the example of Microsoft and Google competing: Windows vs Chrome, Bing vs. Google Search, etc. What was there to lose? Their dominance. Apple came and took it away by completely circumventing them. Winning is better than losing, but everybody loses when the war isn’t worth fighting.
If you can’t beat a rival, it may be better to merge.
Chapter 5: Last Mover Advantage
There are 4 characteristics of a monopoly: proprietary technology, network effects, economies of scale, and branding. These characteristics are not a checkbox, but they help you build a durable company so you can get the value of future cash flows instead of focusing on the present.
- Proprietary Technology
- As a good rule of thumb, the proprietary tech needs to be 10x better than any competition for people to not think it’s a marginal improvement
- Clearest way to make a 10x improvement is to make something new, or radically improve an existing solution
- Network Effects
- They can be powerful, but you’ll never reach them unless your product is valuable to the very first users when the network is necessarily small
- Economies of Scale
- Service businesses are especially difficult to make monopolies with
- A good startup should have the potential for great scale build into its first design
- Branding
- Creating a strong brand is a powerful way to claim a monopoly
- However, no technology company can be built on branding alone
Building a Monopoly
- Start small and monopolize
- Every startup should start with a very small market – err on starting too small
- Perfect target market – small group of particular people concentrated together and served by few or no competitors
- Any big market is a bad choice, and a big market already served by competing companies is even worse
- Scaling Up
- Once you create/dominate a niche market, then you should gradually expand into related and slightly broader markets
- Sometimes there are hidden obstacles to scaling – an auction marketplace lent itself to natural monopoly because buyers go where the sellers are and vice versa. eBay found that it works best for individually distinctive products like coins and stamps, but not as well for commodity products
- Don’t Disrupt
- The idea of disruption distorts an entrepreneur’s self-understanding in an inherently competitive way – they didn’t see themselves through the older firms’ minds
- If you’re making something new, the act of creation is far more important than the old industries that might not like what you create
The Last Will be First The first mover doesn’t do any good if someone comes and unseats you. It’s better to be the last mover - the person who makes the last great development in a specific market and enjoys years/decades of monopoly profits. To do this, dominate a small market and scale up from there.
Chapter 6: You Are Not A Lottery Ticket
Thiel believes there are two ways to view the future: definite and indefinite. He also believes there’s two ways to treat each one: pessimistically or optimistically. Combined, they make four potential outcomes. Of the four, he believes that three are possible to sustain.
- Definite Optimism:
- Works when you build the future you envision
- Definite Pessimism:
- Works by building what can be copied without expecting anything new
- Indefinite Pessimism:
- Self-fulfilling: if you’re a slacker with low expectations, it’ll probably be met
- Indefinite Optimism:
- What he sees as most common in America and the modern world now
- People always attempt for option value – that’s why they are bankers, consultants, etc.
You can create money by shifting it around and you always have options where to change your job, but you create nothing of value
- He thinks it is unsustainable: how can the future get better if no one plans for it?
- People call this phenomenon evolution – progress without planning
The Return of Design:
The power of planning makes it difficult to value private companies. When a big company makes an offer to acquire a successful startup, they always offer too much or too little: founders only sell when they have no more concrete visions for the company - in which the acquirer overpaid; definite founders with robust plans don’t sell, which means the offer wasn’t high enough.
A startup is the largest endeavor over which you can have definite mastery. You 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.
Chapter 7: Follow the Money
Be aware of the power law returns in life, I’ve written about this before at length. Power law returns are everywhere in life if you just know where to look for it.
Chapter 8: Secrets
Peter Thiel talks about a spectrum of discovery: there are the conventions, the secrets, and the mysteries.
- Conventions are easy to find. People talk about them all the time, and most of them are taken for fact. Building a business or discussing conventions are uninteresting because they’re already proven, but that’s what most people spend their time on.
- Mysteries are more interesting than conventions, but could be even less fruitful. The difference between a mystery and a secret is a mystery is something that will never be solved. It may be nigh impossible to distinguish whether something is a true mystery or not, but you don’t want to waste your time on something unsolvable.
- Secrets are the most interesting of the three. Today, it seems like there are no secrets. We believe in globalization and homogenization and it seems like the world is all the same. Peter Thiel believes that geography could be to blame. If we feel like we’ve explored all the land we need to explore, what other reason is there to find what’s new? And yet, finding the secrets of the world are what yield both monopoly rents and true discovery.
Why do we not search for secrets? Peter Thiel has four reasons besides geography:
- Incrementalism - we are taught from a young age to improve step by step. We are not rewarded for learning more than necessary on a test, and academic institutions have you study a variety of subjects so you have optionality in the future. This ignores the power law returns discussed in the previous chapter, and prevents us from pushing boundaries.
- Risk Aversion - by definition, a secret is something unvetted by the mainstream. People are scared to be wrong. It is already hard to devote your life to a secret that you know is true that no one else believes in. To devote yourself to something no one else believes in and to find out you’re wrong? That’s unbearable.
- Complacency - those in elite statuses have the most freedom to search for secrets and be wrong, but they are the least likely to do so. Why? They can comfortably collect rents from things that have already been discovered.
- Globalization - if we believe the world is ‘flat’, wouldn’t someone else have already found the idea we’re searching for? This belief leads to the belief that markets are always efficient, and to not question the prices we see on stocks. We know that this is not always the case.
So we want to have the courage to find secrets, and we want to have the skills to be able to do so. How do we find secrets? First, Peter Thiel divides the world of secrets into two:
- Natural Secrets – these are the secrets of nature. These are harder to find and are what some PhD and academics search for.
- Secrets of People – when thinking about these, ask yourself a few questions
- What are people not allowed to talk about
- What is forbidden or taboo?
The best place to look for secrets is where no one else is looking. Most people only think in terms of what they’ve been thought.
Who do you tell your secrets to? You don’t want to tell them to everybody, especially if they’re non-conventional. But the best entrepreneurs know that they have to tell a few people, and that collection of people is what we call a company.
Chapter 9: Foundations
Thiel’s Law: A startup messed up at its foundations cannot be fixed
To him, the beginning is the only time where you can really set the course for the startup. You must choose the right partner, set the right culture, and set yourself up to scale. There are three types of power for a company: ownership, possession, and control.
- 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?
For early-stage startups, founders usually have both ownership and possession. The fights are either between co-founders or founders and investors on the board. Thiel believes the ideal board size is three, any more than five is too much.
He also has a rule for founder salaries: In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary. Furthermore, giving out equity is going to be unequal so founders should not tell other employees how much they got.
This is really interesting to me because there has been a lot of talk on Tech/VC twitter recently about how equity amounts should be disclosed between every employee. The idea is if they are publicly shared then employees can demand equal compensation. The reality is not every employee is equal, so there exists the tension between Thiel’s way and the other way. I’m not sure which way is right, but it does make sense that the most valuable employees be compensated over the rest even if they have the same title.
Chapter 10: The Mechanics of Mafia
‘Company Culture’ does not exist from the company itself: no company has a culture; every company is a culture. Hiring the most talented people from their resumes yield mixed results. Thiel recommends recruiting based on people who genuinely want to be at your company. You cannot attract these people through perks or through compensation. There are only two real reasons you can recruit people:
- Answers about your mission
- Why is the mission compelling, and why will no one else get it done?
- Answers about your team
- You should be able to show why your company is a unique match for the person, if not they probably aren’t the right people
From the outside, everyone in your company should be different in the same way. There is the impression that no one cares about what they wear in the Valley, but they actually all do. The logo on their t shirts matter a lot to people. The startup uniform encapsulates a simple but essential principle: everyone at your company should be different in the same way - a tribe of like-minded people fiercely devoted to the company’s mission.
The PayPal team were the same kind of nerd. They read the same books and all preferred Star Wars to Star Trek, and above all they were obsessed with digital currency that would be concerned with individuals instead of governments.
When Peter Thiel was managing PayPal, he gave every person one responsibility that they owned. He found that this decreased conflict because most conflict came when people argued about responsibility.
The best startups are less extreme kinds of cults. People at a startup need to be fanatically right about something those outside it have missed.
This runs exactly counter to the type of diversity The Valley is trying to promote now, so it’s interesting again to see how contrarian Thiel’s ideas are.
Chapter 11: If you build it, will they come?
Sales are important, and you need to realize that engineers may not understand this. There are a few different kinds of sales: viral marketing, marketing, sales, complex sales… The nerds of the company will think Sales is a useless job, but the reality is that there is no such thing as product market fit and you’ll always need a salesman. If you’re a founder and you don’t see a salesman around, you’re the salesman.
Paul Graham, legendary founder of Y Combinator and Viaweb, takes the exact opposite approach. To him, building the greatest product is the most important step. Customers that love your product will tell their friends, and you’ll have viral growth without doing anything.
I think the answer lies somewhere in-between the two, and is heavily dependent on the type of company. Then again I haven’t founded multiple billion dollar companies so who am I to judge what they think?
Chapter 12: Man and Machine
The fundamental question when thinking about AI and computers in the future is: Will a machine replace you? It made sense that humans replaced other humans - Mexicans are willing to do the same manual labor as Americans for less pay, but they are fundamentally driven by the same human desires. Humans are therefore substitute goods.
Computers, on the other hand, are complementary goods. They are extraordinarily good at making sense of large data sets, but are bad at making decisions even the youngest human could. Gains from working with computers are much higher than gains from trade with other people - computers are tools, not rivals. Thiel has seen this with Palantir’s operations; neither computer nor human alone is good enough, but together they can do special things.
Why do so many people miss the complementary nature of computers? He blames computer science projects in school, most of which are designed to reduce human capabilities into specialized tasks that computers can conquer one by one.
Chapter 13: Seeing Green
At the start of the 21st century, everyone thought that the future was green energy. It turned out to be a $50 billion bubble. Why? They failed to answer the seven questions every business must answer:
- The Engineering Question - can you create a breakthrough technology instead of incremental improvements?
- When you only improve ‘20%’, that ‘20%’ is only in the lab so it’s unlikely to be replicated in the field. If you somehow transfer the 20% to the field, consumers will be skeptical that it’s not marketing noise, so it’ll be useless. You have to create a 10x improvement for people to really believe it and need it.
- The Timing Question – Is now the right time to start your particular business?
- You have to think about the timing of the market and of your inventions. Entering a slow moving market can be a good strategy, but only if you have a definite and realistic plan to take it over
- The Monopoly Question – Are you starting with a big share of a small market?
- Exaggerating your uniqueness is an easy way to botch a monopoly question, and is often what non-monopolists do
- The People Question – Do you have the right team?
- When you are solving a problem, you have to ask if you’re the right type of person to solve the problem. For Cleantech, solving the problem was an engineering problem but the people leading the companies were wearing suits and were businesspeople. It was clear that they were the wrong kind of person to solve the problem – Founders Fund created a blanket ban on funding any CEO that wore a suit
- The Distribution Question – Do you have a way to not just create but deliver your product?
- The Durability Question – Will your market position be defensible 10 and 20 years into the future?
- Every entrepreneur should be the last mover in their particular market. That starts with asking yourself: what will the world look like in 10 and 20 years from now, and how will my business fit in?
- The Secret Question – Have you identified a unique opportunity that others don’t see?
- Every Cleantech company convinced themselves that we need a cleaner world, therefore they had the necessary secret. Thiel does not belief this qualifies. Great companies have secrets: specific reasons for success that other people don’t see.
Chapter 14: The Founder’s Paradox
This chapter is about why it’s more powerful but at the same time dangerous for a company to be led by a distinctive individual instead of an interchangeable manager.
Extreme founder figures are not new, they’ve existed since classical mythology. The famous and infamous have always served as vessels for public sentiment: they’re praised amid prosperity and blamed for misfortune. Bill Gates and Steve Jobs were polar opposites in their approach (one a visionary and one a businessman), but they were both essential for their company’s success and dominance.
Chapter 15: Stagnation or Singularity
Thiel sees 4 possible outcomes of society:
- Recurrent Collapse - we alternate between success and collapse
- Plateau - we all converge on the level of success of the most successful countries
- Extinction - interconnected geography and large-scale social differences create a collapse so devastating that we do not survive
- Takeoff - accelerating takeoff to a better future
He doesn’t believe recurrent collapse is likely - the knowledge underlying civilization is so widespread that extinction is more likely than a dark age. When you add competition to scarce resources, it’s also hard to see a global plateau. The fourth scenario where we use technology to create an ever improving future is known as the Singularity. Even if this is likely, we will never get there if we don’t do anything about it. Our task to get there is to go from 0 to 1, and we do that by thinking for ourselves.
Only by seeing the world anew, as fresh and strange as it was to the ancients who first saw it, can we both recreate it and preserve it for the future.
I know there are many people that don’t agree with some of Thiel’s politics or methods, but I believe it’s important to separate your conception of a person and their actual work. The book was filled with contrarian takes on pretty classic business strategies, and I found it to be very informative. While this review includes a lot of information, it is by no means exhaustive when talking about the possibilities explored in the book. Additionally, I did not include many of the graphs that helped make the concepts understandable.
Therefore, I would recommend this book to anyone interested in entrepreneurship or business in general. You can find it on Amazon here.