Zero to One

Author: Peter Thiel

• 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.

• Unless they invest in the difficult task of creating new things, American companies will fail in the future no matter how big their profits remain today.

• 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.

• 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.”

• That progress can take one of two forms. 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.

• 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.

• “Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote (before he went mad).

• The ’90s started with a burst of euphoria when the Berlin Wall came down in November ’89. It was short-lived. By mid-1990, the United States was in recession.

• The Mosaic browser was officially released in November 1993, giving regular people a way to get online. Mosaic became Netscape, which released its Navigator browser in late 1994.

• before the bubble actually burst—Fed chairman Alan Greenspan warned that “irrational exuberance” might have “unduly escalated asset values.”

• Dot-com mania was intense but short—18 months of insanity from September 1998 to March 2000.

• Since the ’90s migration “from bricks to clicks” didn’t work as hoped, investors went back to bricks (housing) and BRICs (globalization). The result was another bubble, this time in real estate.

• ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes?

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

• perfectly competitive markets achieve equilibrium when producer supply meets consumer demand.

• If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.

• Framing itself as just another tech company allows Google to escape all sorts of unwanted attention.

• Entrepreneurs are always biased to understate the scale of competition,

• Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make.

• When you hear that most new restaurants fail within one or two years, your instinct will be to come up with a story about how yours is different. You’ll spend time trying to convince people that you are exceptional instead of seriously considering whether that’s true.

• Starting a new South Indian restaurant is a really hard way to make money. 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.

• Creative industries work this way, too. No screenwriter wants to admit that her new movie script simply rehashes what has already been done before. Rather, the pitch is: “This film will combine various exciting elements in entirely new ways.”

• 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:

• And you’ll need to squeeze out every efficiency: that’s why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.

• Monopolists can afford to think about things other than making money; non-monopolists can’t.

• Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.

• If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we’d be right to oppose them.

• If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we’d be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents.

• Economists copied their mathematics from the work of 19th-century physicists: they see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that’s what’s easy to model, not because it represents the best of business.

• Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.

• All happy companies are different: each one earns a monopoly by solving a unique problem.

• 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.

• More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.

• Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking.

• All Rhodes Scholars had a great future in their past.

• Marx and Shakespeare provide two models for understanding almost every kind of conflict.

• According to Marx, people fight because they are different.

• To Shakespeare, by contrast, all combatants look more or less alike. It’s not at all clear why they should be fighting, since they have nothing to fight about.

• 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’t beat a rival, it may be better to merge.

• Sometimes you do have to fight. Where that’s true, you should fight and win. There is no middle ground: either don’t throw any punches, or strike hard and end it quickly.

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

• But a great business is defined by its ability to generate cash flows in the future.

• Simply stated, the value of a business today is the sum of all the money it will make 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?

• What does a company with large cash flows far into the future look like? Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.

• For example, if all your friends are on Facebook, it makes sense for you to join Facebook, too. Unilaterally choosing a different social network would only make you an eccentric.

• Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students—Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract all people of Earth. This is why successful network businesses rarely get started by MBA types: the initial markets are so small that they often don’t even appear to be business opportunities at all.

• Many businesses gain only limited advantages as they grow to large scale. Service businesses especially are difficult to make monopolies.

• In a single tweet, Yahoo! summarized Mayer’s plan as a chain reaction of “people then products then traffic then revenue.”

• Brand, scale, network effects, and technology in some combination define a monopoly; but to get them to work, you need to choose your market carefully and expand deliberately.

• Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market.

• This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market. In practice, a large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%. And even if you do succeed in gaining a small foothold, you’ll have to be satisfied with keeping the lights on: cutthroat competition means your profits will be zero.

• The name itself brilliantly encapsulated the company’s scaling strategy. The biodiversity of the Amazon rain forest reflected Amazon’s first goal of cataloging every book in the world, and now it stands for every kind of thing in the world, period.

• Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.

• But 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.

• But moving first is a tactic, not a goal. What really matters is generating cash flows in the future,

• But 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.

• Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances.… Strong men believe in cause and effect.”

• In 1914 the Panama Canal cut short the route from Atlantic to Pacific.

• And private equity investors and management consultants don’t start new businesses; they squeeze extra efficiency from old ones with incessant procedural optimizations.

• Technological advance seemed to accelerate automatically, so the Boomers grew up with great expectations but few specific plans for how to fulfill them.

• But perhaps you can’t understand Malcolm Gladwell without understanding his historical context as a Boomer (born in 1963). When Baby Boomers grow up and write books to explain why one or another individual is successful, they point to the power of a particular individual’s context as determined by chance.

• But they miss the even bigger social context for their own preferred explanations: a whole generation learned from childhood to overrate the power of chance and underrate the importance of planning.

• Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.

• At no point does anyone in the chain know what to do with money in the real economy. But 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.

• We are more fascinated today by statistical predictions of what the country will be thinking in a few weeks’ time than by visionary predictions of what the country will look like 10 or 20 years from now.

• It’s no surprise that entitlement spending has eclipsed discretionary spending every year since 1975.

• Eroom’s law—that’s Moore’s law backward—observes that the number of new drugs approved per billion dollars spent on R&D has halved every nine years since 1950.

• Biotech startups are an extreme example of indefinite thinking. Researchers experiment with things that just might work instead of refining definite theories about how the body’s systems operate.

• The other three views of the future can work. 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 works because it’s self-fulfilling: if you’re a slacker with low expectations, they’ll probably be met.

• how can the future get better if no one plans for it? Actually, most everybody in the modern world has already heard an answer to this question: progress without planning is what we call “evolution.”

• Just as Newtonian physics can’t explain black holes or the Big Bang, it’s not clear that Darwinian biology should explain how to build a better society or how to create a new business out of nothing. Yet in recent years Darwinian (or pseudo-Darwinian) metaphors have become common in business.

• 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.

• It’s true that every great entrepreneur is first and foremost a designer.

• The power of planning explains the difficulty of valuing private companies. When a big company makes an offer to acquire a successful startup, it almost always offers too much or too little: founders only sell when they have no more concrete visions for the company, in which case the acquirer probably overpaid; definite founders with robust plans don’t sell, which means the offer wasn’t high enough.

• having invested the principal of a lifetime’s brilliance, Einstein continues to earn interest on it from beyond the grave by receiving credit for things he never said.

• the power law—so named because exponential equations describe severely unequal distributions—is the law of the universe.

• The big question is when this takeoff will happen. For most funds, the answer is never. Most startups fail, and most funds fail with them.

• 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.

• When you choose a career, you act on your belief that the kind of work you do will be valuable decades from now.

• Less obvious but just as important, an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve.

• 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.

• For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented. If anything, too many people are starting their own companies today.

• The power law means that differences between companies will dwarf the differences in roles inside companies.

• you do start your own company, you must remember the power law to operate it well. The most important things are singular: One market will probably be better than all others, as we discussed in Chapter 5. One distribution strategy usually dominates all others, too—for that see Chapter 11. Time and decision-making themselves follow a power law, and some moments matter far more than others—see Chapter 9. However, you can’t trust a world that denies the power law to accurately frame your decisions for you, so what’s most important is rarely obvious.

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

• Ted Kaczynski, infamously known as the Unabomber.

• If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista.

• All fundamentalists think this way, not just terrorists and hipsters.

• If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit better than your peers), you’ll get an A.

• This process extends all the way up through the tenure track, which is why academics usually chase large numbers of trivial publications instead of new frontiers.

• in a democratic society, a wrongful practice persists only when most people don’t perceive it to be unjust.

• 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?

• competition and capitalism are opposites. If you didn’t already know it, you could discover it the natural, empirical way: do a quantitative study of corporate profits and you’ll see they’re eliminated by competition.

• If you find a secret, you face a choice: Do you tell anyone? Or do you keep it to yourself?

• As Faust tells Wagner: The few who knew what might be learned, Foolish enough to put their whole heart on show, And reveal their feelings to the crowd below, Mankind has always crucified and burned.

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

• “if men were angels, no government would be necessary.”

• In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight.

• If you want that kind of free rein from your board, blow it up to giant size. If you want an effective board, keep it small.

• However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned. At the margin, they’ll be biased to claim value in the near term, not help you create more in the future. That’s why hiring consultants doesn’t work.

• In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.

• If a CEO doesn’t set an example by taking the lowest salary in the company, he can do the same thing by drawing the highest salary.

• This leads to a second, less obvious understanding of the founding: it lasts as long as a company is creating new things, and it ends when creation stops.

• specialist to hone your buzzwords. “Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture.

• But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational.

• 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.

• From the outside, everyone in your company should be different in the same way.

• Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism.

• attitude the only sane approach? The extreme opposite of a cult is a consulting firm like Accenture: not only does it lack a distinctive mission of its own, but individual consultants are regularly dropping in and out of companies to which they have no long-term connection whatsoever.

• The extreme opposite of a cult is a consulting firm like Accenture: not only does it lack a distinctive mission of its own, but individual consultants are regularly dropping in and out of companies to which they have no long-term connection whatsoever.

• The biggest difference is that cults tend to be fanatically wrong about something important. People at a successful startup are fanatically right about something those outside it have missed.

• But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.

• People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians.”

• On Wall Street, a new hire starts as an “analyst” wielding technical expertise, but his goal is to become a dealmaker.

• 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).

• In general, the higher the price of your product, the more you have to spend to make a sale—and the more it makes sense to spend it.

• Politics matters in big deals just as much as technological ingenuity, so this wasn’t easy.

• A complex sales approach would have made Box a forgotten startup failure; instead, personal sales made it a multibillion-dollar business.

• 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. This is how Facebook and PayPal both grew quickly:

• Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.

• But the kitchen sink approach—employ a few salespeople, place some magazine ads, and try to add some kind of viral functionality to the product as an afterthought—doesn’t work.

• Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure.

• you should never assume that people will admire your company without a public relations strategy.

• Look around. If you don’t see any salespeople, you’re the salesperson.

• People have intentionality—we form plans and make decisions in complicated situations. We’re less good at making sense of enormous amounts of data. Computers are exactly the opposite: they excel at efficient data processing, but they struggle to make basic judgments that would be simple for any human.

• When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different.

• The Central Intelligence Agency is run by spies who privilege humans. The National Security Agency is run by generals who prioritize computers.

• Watson, Deep Blue, and ever-better machine learning algorithms are cool. But 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?

• Technology is supposed to increase our mastery over nature and reduce the role of chance in our lives;

• Strong AI is like a cosmic lottery ticket: if we win, we get utopia; if we lose, Skynet substitutes us out of existence.

• 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? 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? 7. The Secret Question Have you identified a unique opportunity that others don’t see?

• Exaggerating your own uniqueness is an easy way to botch the monopoly question.

• They would rhetorically shrink their market in order to seem differentiated, only to turn around and ask to be valued based on huge, supposedly lucrative markets.

• Fracking may not be a durable energy solution, either, but it was enough to doom cleantech companies that didn’t see it coming.

• Social entrepreneurs aim to combine the best of both worlds and “do well by doing good.” Usually they end up doing neither.

• No sector will ever be so important that merely participating in it will be enough to build a great company.

• These are the roots of monarchy: every king was a living god, and every god a murdered king.

• 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.

• Rand was a merely half-great writer: her villains were real, but her heroes were fake.

• The ancients saw all of history as a neverending alternation between prosperity and ruin. Only recently have people dared to hope that we might permanently escape misfortune, and it’s still possible to wonder whether the stability we take for granted will last.

• Ray Kurzweil, the best-known Singularitarian, starts from Moore’s law and traces exponential growth trends in dozens of fields, confidently projecting a future of superhuman artificial intelligence.

• Everything important to us—the universe, the planet, the country, your company, your life, and this very moment—is singular.

• 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 re-create it and preserve it for the future.