I first read this book during my semester abroad in Madrid and had liked it so much that I decided to read it again.
Zero to one is premised on the stark reality that every pivotal moment in business only happens once. That is, doing what we know takes the world from 1 → n. Creating something new takes the world from 0 → 1, and this act of creation is singular.
This is what makes entrepreneurship so interesting. There’s so much advice about how to build startups but this is the paradox itself. There is no formula for success because every innovation is unique.
Thiel captures this 0 → 1 mentality through his favorite interview question: what important truth do very few people agree with you on? This is a daunting question, and is difficult to answer well. One way to approach it is to think about generally accepted truths that you believe to be false.
Technology takes the world from 0 → 1. And new technology comes from startups. And startups are predicated on small groups of people bound by a mission. For those building a company, Thiel has a few contrarian truths he offers:
I find these really interesting because a common narrative in Silicon Valley is: ditch the business plan, ditch the sales teams and focus exclusively on building. But following his truths can help you avoid a trap that many companies suffer from: not capturing the value you create.
For example, Thiel writes: “US airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google, which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year.”
Speaking of Google, Thiel raises a valuable point that can be used to categorize businesses generally. He notes that businesses that enjoy monopoly profits lie to protect themselves whilst non-monopolies lie by pretending to be in a league of their own.
Non-monopolists exaggerate their distinction by defining their market as the intersection of various small markets, whilst monopolists disguise their monopoly by framing their market as the union of several large markets.
In making this point, Thiel quotes Tolstoy when he says that 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.
Thiel uses this backdrop to segue into an observation about higher education - an observation that was particularly impactful for me as someone who studied at Duke and now works in finance:
Higher education is the place where people who had big dreams in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking. For the privilege of being turned into conformists, students (or their families) pay thousands of dollars in skyrocketing tuition that continues to outpace inflation.
Moral of the story: competition is a destructive force.
In pursuit of monopoly profits, it is important that your business has some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
In finding your mosaic of these characteristics, it is best to start with a small target market. Err on the side of too small - the perfect market is a small group of particular people concentrated together and served by few or no competitors.
And don’t worry too much about having a first mover advantage - it’s much better to be the last mover in a market, i.e. making the last great development in a market and enjoying years of monopoly profits.
Thiel then becomes a little more abstract, by breaking down our mentality into 4 worldviews:
The point that Thiel makes is that we need to be definite optimists. Definite optimism works by building the future you envision. Indefinite optimism, which is supposedly our current world view, is inherently unsustainable because how can the future get better if no one plans for it?
But this is an opportunity. Because the world is full of indefinite optimists who see the future as random, a business with a definite plan will be underrated.
One way to think about this is the power law - the law of the universe in which a small percentage of x accounts for the majority of y. A small percentage of people account for a majority of the world’s wealth. A small percentage of people are responsible for all intellectual breakthroughs. This law can be applied to almost anything, including venture investing.
Hopeful VCs should remember to only invest in companies that have the potential to return the value of their entire fund. Let a 5% investment return 5x the value of your fund.
For founders and investors, it might be helpful to remember “Thiel's Law” - a startup messed up at its foundation cannot be fixed.
In laying the perfect foundation, founding matrimony is key. Founders should share a prehistory before they start a company, and must find alignment on:
You want to create a fantastic company culture. Good talent has options and is hard to come by - you want people who are excited to do irreplaceable work on a unique opportunity alongside great people. Most of us spend a large percentage of our lives working. Given that time is our most valuable asset, it only makes sense to spend that time with people you like.
As part of this, you want everyone at the company to be involved full time, to prevent any misalignment. It also helps to define very specific roles for employees. Most conflicts arise from colleagues competing for the same set of responsibilities - eliminating this reduces conflict.
In describing culture, Thiel presents the image below. He talks about consulting firms, which not only lack a distinctive mission of their own, but employ individual consultants who are regularly dropping in and out of companies to which they have no long-term connection whatsoever. A good startup with passionate people is the opposite of this.
In concluding, Thiel summarizes by presenting seven key questions that every successful business must answer: