Zero to One

From zero to one

Peter Thiel co-founded PayPal and Palantir and was the first outside investor in Facebook. In 2012 he taught a class on startups at Stanford. Blake Masters, one of his students, took detailed notes and posted them online. This book grew out of those notes.

Thiel opens with a distinction. Horizontal progress, or going from 1 to n, means copying things that already work. Globalization is the main example: spreading existing tools and methods to more places. Vertical progress, or going from 0 to 1, means doing something new. Technology is the main example. Thiel argues that the future depends on 0 to 1 progress, and that copying alone cannot sustain the world's growth.

He then asks his favorite interview question: what important truth do very few people agree with you on? The question is hard because a good answer must be both true and unpopular. Most people give answers that are either common beliefs or simply wrong. A strong answer points to a hidden truth about the future, and a company is a way to act on it.

Thiel also looks back at the dot-com crash of 2000. He says Silicon Valley drew four lessons from it: make incremental advances, stay lean and flexible, improve on the competition, and focus on product, not sales. He argues that 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.

Competition is for losers

The central claim of the book is that every successful company is a kind of monopoly. Thiel means a company so good at what it does that no other firm can offer a close substitute. Google in search is his example. In contrast, the restaurant business is close to perfect competition: many firms, little difference between them, and thin profits.

Thiel notes that both kinds of firm lie about their position. Monopolies describe themselves as small players in a huge market, to avoid scrutiny. Competitive firms describe themselves as the leader of a tiny, invented niche, to feel special. Both distort the truth, so you must define your market honestly.

He argues that competition is an ideology that people accept without question. Schools, careers and businesses train people to compete for the same prizes. Rivalry makes people focus on each other instead of on the work. His example is the bitter fight between PayPal and Elon Musk's X.com in 1999 and 2000. The two companies ended the fight by merging.

Building a lasting monopoly

Thiel names four traits that most monopolies share:

• Proprietary technology. As a rule of thumb, your product should be at least ten times better than the closest substitute in some important way. Amazon offered far more books than any physical store.
• Network effects. A product becomes more useful as more people use it. These effects only work if the product is valuable to its first small group of users.
• Economies of scale. The cost of serving each new customer drops as the company grows. Software is a strong example.
• Branding. A strong brand helps, but Thiel warns that brand without substance does not last.

To build a monopoly, start small and monopolize. Pick a small market you can dominate, then expand. Facebook began at Harvard. PayPal began with power sellers on eBay. Amazon began with books. Once you dominate a small market, expand into related ones in concentric circles.

Thiel is skeptical of the word disruption. If you frame your goal as disrupting someone, you invite a fight with them. It is better to create something new.

He also argues for last mover advantage. Being first does not matter if a competitor takes your market later. What matters is being the last company to make a great development in a market and then enjoying years of monopoly profits. A company's value lies in its cash flows far in the future, so durability counts more than early growth.

You are not a lottery ticket: plans, power laws and secrets

Thiel says people today treat the future as a matter of chance. He sorts views of the future into four kinds, based on two questions: is the future good or bad, and can we plan it or not?

• Definite optimism: the future will be better if we plan and work for it. Thiel says this described the United States from the 1950s to the late 1960s.
• Indefinite optimism: the future will be better, but no one knows how, so we make no specific plans. Thiel says this describes the United States today.
• Definite pessimism: the future is knowable but bleak, so prepare for it. Thiel places China here.
• Indefinite pessimism: the future is bleak and no one knows what to do. Thiel places Europe here.

Thiel favors definite optimism. He argues that a startup is the largest effort you can fully control to make a specific plan come true. He rejects the idea that success is mostly luck.

In venture capital, Thiel says, returns follow a power law, not a normal distribution. A few investments produce most of the returns. At Founders Fund, his venture fund, the stake in Facebook returned more than all the other investments in that fund put together. So investors should only back companies that could return the whole fund. Thiel says the same law applies to individual lives. You should not spread yourself across many small bets, because one choice, such as which company you join, can matter more than all the rest.

Great companies are built on secrets: important truths that are not obvious but can be found with effort. Thiel says there are three kinds of knowledge: easy, which everyone knows; hard, which you can learn with work; and impossible. Secrets live in the hard category. People stopped believing in secrets for several reasons: they want to go step by step, they fear being wrong, they see the world as fully mapped, and they think markets have already priced everything in. Thiel says there are still many secrets, about nature and about people. Airbnb found one: people with spare rooms and travelers wanted a cheaper, more personal option than a hotel.

Foundations and culture

Thiel's law says that a startup messed up at its foundation cannot be fixed. The first choices, such as co-founders, ownership and the board, are very hard to reverse.

Choose co-founders as carefully as a marriage partner. Thiel separates three roles: ownership (who holds equity), possession (who runs the company day to day) and control (who governs it). Problems come when these are misaligned. A small board, ideally three people, works best.

Thiel argues that founders and early staff should be fully in, not part-time or remote. He says a CEO's cash salary should be low. In his experience, the lower the CEO's pay, the more likely the startup is to succeed. He suggests a cap of about $150,000 a year. Equity, not cash, aligns people with the long-term value of the company.

On culture, Thiel describes the PayPal mafia, the early PayPal team that went on to found or lead many other companies. PayPal hired people who liked working together. Thiel says a company should feel like a group of people on a mission, not a set of hires doing tasks. Recruit by explaining why your mission is important and why your team is the right one, not with perks. Inside, give each person one clear area of responsibility to reduce conflict.

Selling, technology and the questions every business must answer

Thiel says engineers often think a great product will sell itself. That is rarely true. Distribution matters as much as product. He describes a range of methods, from complex sales (large deals, where the CEO often sells) to personal sales, to marketing and advertising, to viral marketing. Between personal sales and mass marketing lies a dead zone where no channel is cost-effective. Every company must also "sell" itself to employees and investors.

On technology, Thiel argues that computers should complement people, not replace them. At PayPal, automated systems could not stop fraud alone. The team built a system, named Igor, that flagged suspicious transactions for human analysts to review. Palantir applies the same idea to data analysis for governments.

In "Seeing Green," Thiel uses the cleantech bubble of the 2000s to set out seven questions every business must answer:

1. Engineering: can you create breakthrough technology instead of small improvements?
2. Timing: is now the right time to start?
3. Monopoly: are you starting with a big share of a small market?
4. People: do you have the right team?
5. Distribution: do you have a way to deliver your product, not only to create it?
6. Durability: will your market position hold for ten and twenty years?
7. Secret: have you found a unique opportunity that others do not see?

Most cleantech firms, he says, failed several of these questions. Solyndra is his main example. He holds up Tesla as a cleantech company that answered all seven well.

The last chapter, "The Founder's Paradox," argues that founders often have extreme and contradictory traits, and that societies tend to treat them as either gods or scapegoats. Thiel accepts that founders can be dangerous, but says companies need someone with the vision and authority to make bold decisions. The conclusion sets out four possible futures for humanity: recurring collapse, a plateau, extinction, or a takeoff into something much better. Only new technology can bring the last one.

What the critics say

Critics say Thiel's praise of monopoly ignores the harms that monopolies can cause to customers and to competition, and that "competition is for losers" works better as a strategy for one firm than as a rule for an economy. Others note that his examples are mostly drawn from a few famous winners in software, which can make his rules look more general than they are. His views on founders and politics are also widely debated.

Who should read it

This book is for founders, early employees and investors who want a framework for judging which companies can last. It also suits anyone who wants to think more boldly about the future and test their own contrarian ideas.