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If you want to build a better future, you must believe in secrets.

The great secret of our time is that there are still uncharted frontiers to explore and new inventions to create. In Zero to One, legendary entrepreneur and investor Peter Thiel shows how we can find singular ways to create those new things.

Thiel begins with the contrarian premise that we live in an age of technological stagnation, even if we’re too distracted by shiny mobile devices to notice. Information technology has improved rapidly, but there is no reason why progress should be limited to computers or Silicon Valley. Progress can be achieved in any industry or area of business. It comes from the most important skill that every leader must master: learning to think for yourself.

Doing what someone else already knows how to do takes the world from 1 to n, adding more of something familiar. But when you do something new, you go from 0 to 1. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. Tomorrow’s champions will not win by competing ruthlessly in today’s marketplace. They will escape competition altogether, because their businesses will be unique.

Zero to One presents at once an optimistic view of the future of progress in America and a new way of thinking about innovation: it starts by learning to ask the questions that lead you to find value in unexpected places.

Takeaways

1. The Challenge of the Future

Interview question Q: What important truth do very few people agree with you on? Ref A: Most people believe in x, but the truth is the opposite of x. Ref

  • Vertical progress is harder to imagine because it requires doing something nobody else has ever done. If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress. Ref
  • Properly understood, any new and better way of doing things is technology. Ref
  • The smartphones that distract us from our surroundings also distract us from the fact that our surroundings are strangely old: only computers and communications have improved dramatically since midcentury. Ref

2. Party like it’s 1999

  • PayPal Customer Acquisition Approach: We gave new customers $10 for joining, and we gave them $10 more every time they referred a friend. This got us hundreds of thousands of new customers and an exponential growth rate. Ref
  • 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 Ref
    2. Stay lean and flexible Ref
    3. Improve on the competition Ref
    4. Focus on product, not sales Ref
  • 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. Ref
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. Ref

3. All Happy Companies Are Different

what valuable company is nobody building? Ref

  • Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets:
    • British food ∩ restaurant ∩
    • Palo Alto Rap star ∩ hackers ∩ sharks
  • Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets:
    • search engine ∪ mobile phones ∪ wearable computers ∪ self-driving cars Ref
  • In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. 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. Ref
  • the history of progress is a history of better monopoly businesses replacing incumbents. Ref
  • Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Ref
  • Monopoly is the condition of every successful business. Ref
  • every business is successful exactly to the extent that it does something others cannot. Ref

4. The Ideology of Competition

  • I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new. It’s hard to say how much would be different, but the opportunity costs were enormous. All Rhodes Scholars had a great future in their past. Ref
Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past. Ref

  • The hazards of imitative competition may partially explain why individuals with an Asperger’s-like social ineptitude seem to be at an advantage in Silicon Valley today. If you’re less sensitive to social cues, you’re less likely to do the same things as everyone else around you. Ref
Competition can make people hallucinate opportunities where none exist. Ref

  • This twisted logic is part of human nature, but it’s disastrous in business. If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most. Ref

5. Last Mover Advantage

  • A monopoly is only a great business if it can endure in the future. Ref
    • 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. Ref
  • Characteristics of Monopoly Ref
    1. Proprietary Technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate. Ref
    2. Network Effects make a product more useful as more people use it. 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. Ref
      • Network effects can be powerful, but you’ll never reap them unless your product is valuable to its very first users when the network is necessarily small. Ref
    3. Economies of Scale A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales. Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero. Ref
    4. Branding A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly. Ref
Start Small and Monopolize: 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. Ref

  • The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors. Ref
  • Scaling Up Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets. Ref
  • As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible. Ref
  • “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. Ref
  • disruption has recently transmogrified into a self-congratulatory buzzword for anything posing as trendy and new. Ref
  • 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. Ref

6. You are not a lottery ticket

  • A definite view 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. Ref
  • The indefinite pessimist can’t know whether the inevitable decline will be fast or slow, catastrophic or gradual. Ref
  • A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it. Ref
  • To a definite optimist, the future will be better than the present if he plans and works to make it better. Ref
  • indefinite optimism has dominated American thinking ever since 1982, when a long bull market began and finance eclipsed engineering as the way to approach the future. To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. Ref
  • Instead of working for years to build a new product, indefinite optimists rearrange already-invented ones. Ref
  • Indefinite Finance While a definitely optimistic future would need engineers to design underwater cities and settlements in space, an indefinitely optimistic future calls for more bankers and lawyers. Ref
  • Indefinite Politics Politicians have always been officially accountable to the public at election time, but today they are attuned to what the public thinks at every moment. Modern polling enables politicians to tailor their image to match preexisting public opinion exactly, so for the most part, they do. Ref
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. Ref

  • When Yahoo! offered to buy Facebook for $1 billion in July 2006, I thought we should at least consider it. But Mark Zuckerberg walked into the board meeting and announced: “Okay, guys, this is just a formality, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here.” Mark saw where he could take the company, and Yahoo! didn’t. A business with a good definite plan will always be underrated in a world where people see the future as random. Ref
  • 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. Ref

7. Follow the money

  • Venture capitalists aim to identify, fund, and profit from promising early-stage companies.
    • They raise money from institutions and wealthy people, pool it into a fund, and invest in technology companies that they believe will become more valuable.
    • If they turn out to be right, they take a cut of the returns—usually 20%.
    • A venture fund makes money when the companies in its portfolio become more valuable and either go public or get bought by larger companies. Venture funds usually have a 10-year lifespan since it takes time for successful companies to grow and “exit.” Ref
  • Most venture-backed companies don’t IPO or get acquired; most fail, Ref
  • Power law: a small handful of companies radically outperform all others Ref
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. Ref Therefore, they only invest in companies that have the potential to return the value of the entire fund Ref Every single company in a good venture portfolio must have the potential to succeed at vast scale. Ref

  • An entrepreneur cannot “diversify” herself: you cannot run dozens of companies at the same time and then hope that one of them works out well. Less obvious but just as important, an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve. Ref
  • People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it’s growing fast. Ref
  • If you do start your own company, you must remember the power law to operate it well. The most important things are singular Ref

8. Secrets

  • divided human goals into three groups:
    1. Goals that can be satisfied with minimal effort;
    2. Goals that can be satisfied with serious effort; and
    3. Goals that cannot be satisfied, no matter how much effort one makes. Ref
  • four social trends have conspired to root out belief in secrets.
    1. incrementalism. Ref
    2. risk aversion. Ref
    3. complacency. Ref
    4. “flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace Ref
  • two kinds of secrets: secrets of nature and secrets about people. Ref
    • 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. Ref
  • The best place to look for secrets is where no one else is looking. Ref
  • 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. Ref

9. Foundations

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

  • Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example—are very hard to correct after they are made. Ref
When you start something, the first and most crucial decision you make is whom to start it with. Choosing a cofounder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim. Ref

  • Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice. Ref Everyone in your company needs to work well together. Ref
  • It’s very hard to go from 0 to 1 without a team. Ref
    • 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? Ref
    • A typical startup allocates ownership among founders, employees, and investors. The managers and employees who operate the company enjoy possession. And a board of directors, usually comprising founders and investors, exercises control. Ref
  • A board of three is ideal. Your board should never exceed five people, unless your company is publicly held. Ref
  • 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. Part-time employees don’t work. Ref
In no case should a CEO of an earlystage, venture-backed startup receive more than $150,000 per year in salary. Ref

  • A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole. Ref
  • 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. A cash bonus is slightly better than a cash salary—at least it’s contingent on a job well done. But even so-called incentive pay encourages short-term thinking and value grabbing. Any kind of cash is more about the present than the future. Ref
  • Since it’s impossible to achieve perfect fairness when distributing ownership, founders would do well to keep the details secret. Sending out a company-wide email that lists everyone’s ownership stake would be like dropping a nuclear bomb on your office. Ref
  • Equity is a powerful tool precisely because of these limitations. 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. Ref
  • 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. Ref

10. The mechanics of mafia

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. Ref

  • 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. Ref
Talented people don’t need to work for you; they have plenty of options. You should ask yourself a more pointed version of the question: Why would someone join your company as its 20th engineer when she could go work at Google for more money and more prestige? Ref

  • 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. Ref
  • Max Levchin, my co-founder at PayPal, says that startups should make their early staff as personally similar as possible. Startups have limited resources and small teams. They must work quickly and efficiently in order to survive, and that’s easier to do when everyone shares an understanding of the world. Ref
  • 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. Ref
  • The best startups might be considered slightly less extreme kinds of cults. 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. Ref

11. If you build it, will they come?

  • But customers will not come just because you build it. You have to make that happen, and it’s harder than it looks. Ref
  • Nerds are skeptical of advertising, marketing, and sales because they seem superficial and irrational. But advertising matters because it works. Ref
Advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived. Ref

  • What nerds miss is that it takes hard work to make sales look easy. Ref
    • Tom Sawyer managed to persuade his neighborhood friends to whitewash the fence for him—a masterful move. But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser. Ref
  • The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself). Ref
If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product. Ref

Important Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. Ref

  • 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). Ref
  • Our deal sizes range from $1 million to $100 million. At that price point, buyers want to talk to the CEO, not the VP of Sales. Ref
  • Businesses with complex sales models succeed if they achieve 50% to 100% year-over-year growth over the course of a decade. Ref
  • Once you have a pool of reference customers who are successfully using your product, then you can begin the long and methodical work of hustling toward ever bigger deals. Ref
  • Most sales are not particularly complex: average deal sizes might range between $10,000 and $100,000, and usually the CEO won’t have to do all the selling himself. The challenge here isn’t about how to make any particular sale, but how to establish a process by which a sales team of modest size can move the product to a wide audience. Ref
  • Marketing and advertising work for relatively low-priced products that have mass appeal but lack any method of viral distribution. Ref
  • Advertising can work for startups, too, but only when your customer acquisition costs and customer lifetime value make every other distribution channel uneconomical. Ref
  • Startups should resist the temptation to compete with bigger companies in the endless contest to put on the most memorable TV spots or the most elaborate PR stunts. Ref
A product is viral if its core functionality encourages users to invite their friends to become users too. Ref If every new user leads to more than one additional user, you can achieve a chain reaction of exponential growth Ref

  • At PayPal we didn’t want to acquire more users at random; we wanted to get the most valuable users first. Ref
  • Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. Ref
  • Your company needs to sell more than its product. You must also sell your company to employees and investors. Ref
  • Selling your company to the media is a necessary part of selling it to everyone else. Ref
  • you should never assume that people will admire your company without a public relations strategy Ref

12. Man and Machine

Neither side questions the premise that better computers will necessarily replace human workers. But that premise is wrong: computers are complements for humans, not substitutes. Ref

  • People compete for jobs and for resources; computers compete for neither. Ref
  • Globalization Means Substitution. Ref Technology Means Complementarity Ref
    • 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. Ref
    • computers are tools, not rivals. Ref
A new startup idea: we would use the humancomputer hybrid approach from PayPal’s security system to identify terrorist networks and financial fraud. We already knew the FBI was interested, and in 2004 we founded Palantir, a software company that helps people extract insight from divergent sources of information. Ref

  • Why do so many people miss the power of complementarity? It starts in school. Software engineers tend to work on projects that replace human efforts because that’s what they’re trained to do. Academics make their reputations through specialized research; their primary goal is to publish papers, and publication means respecting the limits of a particular discipline. For computer scientists, that means reducing human capabilities into specialized tasks that computers can be trained to conquer one by one. Ref
  • Actionable insights can only come from a human analyst (or the kind of generalized artificial intelligence that exists only in science fiction). Ref

13. 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? Ref
    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? Ref
  • There’s nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he’s probably bad at sales and worse at tech. Ref
  • founders’ traits appear to follow an inverse normal distribution: Ref
  • the creation of new value—cannot be reduced to a formula and applied by professionals Ref
  • The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment—so be careful. Ref
  • The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom. Ref

Conclusion: Stagnation or Singularity?

  • Without new technology to relieve competitive pressures, stagnation is likely to erupt into conflict. In case of conflict on a global scale, stagnation collapses into extinction. Ref
  • Our task today is to find singular ways to create the new things that will make the future not just different, but better Ref