Zero to One Summary (by Peter Thiel)

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Zero to One by Peter Thiel is an important book, not just for thinking about business, but for thinking about value creation more generally.  Understanding this book could be worth $100,000 in cash to you! Read to the end of this Zero to One summary to understand why. 

Personally, I would first read and reread Michael Gerber’s E-Myth (a summary of which is here) as it’s literally indispensable, and then I would meditate on the more philosophical explanations given by Peter Thiel in Zero to One. 

“Startup, cash in, sell out, and bro down” is not what Zero to One is about; rather it’s about the quality of your thinking on entrepreneurship.  

Peter Thiel has built multiple breakthrough companies, and Zero to One shows how.

Elon Musk

This well-written book opens with the arresting line that “…successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.”

Zero to One by Peter Thiel Chapters 1 & 2: The Importance of Critical Thinking

The first couple of chapters of Zero to One by Peter Thiel are about critical thinking. To make life on Earth in the 21st Century habitable, Peter suggests that we must do something other than linear or incremental improvement (e.g. the process of Globalisation) and instead make very many nonlinear or exponential improvements; he suggests that the mechanism to achieve this latter outcome is the progress of technology. 

With the exception of software, in Peter’s view, technological progress has been stunted in recent decades. In part, this is because the wrong lessons were learnt from the dot com crash of the 1990s and that, in fact, their opposites are the “contrarian truth”. 

Zero to One by Peter Thiel Chapters 3 & 4: Standing out and becoming one of a kind

Creating value is not enough; you must escape competition in order to capture some of the value you create. 

In Zero to One, Peter Thiel makes a convincing argument for monopolies; not predatory monopolies as conceived by economists, where very little changes e.g. Monopoly the board game.

Rather he argues that in highly dynamic markets such as those involving technology, businesses should seek a monopoly position (for a while) – which he calls a “creative monopoly” – to make the squeeze worth the juice i.e. to incentivise the hugely creative and difficult work it takes to produce a new and significantly better (i.e. ten times better) product. 

To achieve this benign monopoly position, companies must stand out and separate themselves from all others. If two competing companies can’t do this, Peter suggests that they should consider joining and escaping competition as one company rather than dissipating their energies against each other. 

Zero to One by Peter Thiel Chapter 5: Discussion on how to achieve a creative monopoly 

Growth is not enough; a company must show that it can endure and continue growing several years into the future. 

While the growth of a company is easy to measure, whether it can endure and not be a proverbial “fash in the pan” is very difficult if not impossible to measure. So how can we assess the endurance of a business? 

In Zero to One, Peter Thiel adroitly argues that the numbers alone can’t tell you this and there is no formula to follow; instead one “. . .must think critically about the qualitative characteristics of your business.” 

He provides a non-exhaustive list on this as follows: 

1. Proprietary Technology – is the most important advantage and must make it difficult or impossible for others to replicate your business. It must also make your business significantly rather than marginally better than all other potential competitors. Remember you’re trying to clearly and definitively escape competition and create a creative monopoly. 
2. Network Effects – is needed to reach the true potential but the business must initially work without the benefit of network effects and be very useful to the small number of customers that you start with.
3. Economies of Scale – must be built into the design of the business from day one and should lead to significantly lower marginal costs of production as the business grows.
4. Branding – without substance (i.e. a great product) won’t work and the other criteria support the brand rather than the other way around!
5. Market Selection – is critically important if 1 to 4 above are to have any chance of working. Chose a very small market and dominate it.  A small market is still a market i.e. there must actually be a need and a use for what you provide by a small group of people facing the same problem. Once you dominate your small market you can seek to expand that market e.g. Amazon started with books online but with the intention of then being able to provide services in many other products. 
6. Don’t Disrupt – for the sake of disruption as this will bring you into competition with incumbents. Avoid zero sum games and instead create a net gain for all by focusing on creating something new rather than ultimately undercutting pieces of existing businesses. 
7. The Winner Takes It All – and is very often not the first to provide the niche product think Facebook versus MySpace. 

Zero to One by Peter Thiel Chapter 6: How to shape the future and increase your chances of success 

In Chapter 6 of Zero to One, Peter Thiel dismisses the luck that many attribute to their success as false modesty and argues that you can and must make specific preparations for your success. 

Decide to be a “definite optimist” i.e. someone who knows that the future will be better than the present and then goes to work to make that happen. 

Zero to One by Peter Thiel Chapter 7: Understanding how success is distributed  

Peter explains that the human mind struggles to understand the exponential function and gets lost in the details of very minor successes and failures. 

Rewards are unevenly distributed. Your job is to focus on what makes the biggest difference in your business. Most of what you do will fail and fail spectacularly; a very, very small proportion of what you do has a chance of being an exponential success. You are not looking for a little bit of success in your endeavour; instead, you are looking for massive success. 

What you need to look at is hidden in plain sight and the quality of your thinking can help you identify what you should be focusing on in order to create exponential growth. 

Peter advises that it is a cliche to “not put all your eggs in one basket” and instead to ‘diversify’, however, this is what you must avoid. Do not dabble, do not hedge. Instead, Peter argues that: 

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.

Peter Thiel, Zero to One

In Zero to One, Thiel states that too many people are starting companies without considering how big they can grow and that they might be better spending their time as ‘intrepreneurs’ i.e. joining (and owning a very small part of) a start-up that can potentially grow much, much larger than a company you start yourself that either fails or stays too small to be really successful. 

If you insist on starting your own company, Peter suggests that you only do so once you’ve fully internalised the nature of the exponential function and that it will determine whether your company succeeds or fails. 

Zero to One by Peter Thiel Chapter 8: The secret sauce that goes into making great companies 

In Peter’s view every great company is founded on a secret that is hidden from those outside the company and that the best place to look for secrets is where no one else is able or willing to look for them. 

Zero to One by Peter Thiel Chapter 9: The necessity of starting a company on the correct footing 

This chapter reminded me a lot of Michael Gerber’s E-Myth, a summary of which is here. 

Peter states, correctly in my opinion, that: 

“. . . a startup messed up at its foundation cannot be fixed . . . 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 . . . As a founder your first job is to get first things right, because you cannot build a great company on a flawed foundation.”

Peter argues that smaller boards are more effective than larger boards at their job (i.e. providing oversight), and that everyone should own stock to ensure that their interests are aligned with those of the company. On stock, the details of who gets what should be fair but kept secret in order to avoid inevitable envy and resentment that arises otherwise. 

In Peter’s experience, the less the founder(s) pays himself/ themselves the better the company’s chances as their focus is to increase the longer term value of the company rather than take a short term salary from it.  Bonuses are better than salary in order to encourage high performance.   

Zero to One by Peter Thiel Chapter 10: Company Culture 

In Peter’s view “. . . no company has a culture; every company is a culture.”

Peter believes that PayPal was successful not merely because it was a group of highly talented people, but instead because the people there were on a mission together.  He contrasts this with the law firm where he briefly worked which also had highly talented people but who seemed to lack a common mission and instead tolerated each other rather than appreciated each other. 

Recruiting is a core competency for any company. It should never be outsourced.

Peter Thiel, Zero to One

Startups are often on the back foot when seeking to hire talented people who can receive more money and prestige in more established companies. Therefore, Peter suggests that in order to hire talent, you should ignore artificial perks and instead you must convince potential hires of two things; first that your company is on a mission to achieve something important that otherwise will simply not get done, and second that they would personally enjoy working with your company to fulfil its mission. 

So that everyone has a clear understanding of their role in achieving the mission, and to reduce infighting, Peter found that everyone in the company should be personally responsible for just one unique thing, upon which they know their performance will be assessed.  

Zero to One by Peter Thiel Chapter 11: The importance of sales

In Peter’s view, sales is much more important and much more skillful than nerds (or ‘technicians’ as Michael Gerber would call them) realize.  

The more expensive and more complex the sale is the more personal it becomes and the less it should look like ‘selling’. 

The cost of sales, including advertising and hidden sales bottlenecks is why it can be very hard for SMEs to sell to other SMEs. 

As traditional advertising is too expensive for start-ups they should focus on viral marketing; essentially customers providing free advertising by encouraging those they know to use your product. 

Zero to One by Peter Thiel Chapter 12: The symbiosis of human and computer intelligence

On the premise that ‘strong AI’ is a pipe dream, at least for this century, Peter argues for a third way between those who fear the replacement of humans by technology and futurists who actively encourage it.  

Drawing on his direct experience in developing fraud detection software for PayPal and solutions provided by his company Palantir, in Peter’s view humans and computers are in no way alike and thus are not in competition with one another. Humans can’t hope to analyse the volume of data that computers can, but we must not forget that “[a]ctionable insights can only come from a human analyst.” 

Therefore, “. . .the most valuable companies in the future won’t ask what problems can be solved by computers alone. Instead they’ll ask: how can computers help humans solve hard problems?”

Zero to One by Peter Thiel Chapter 13: Lessons from the failure of the first GreenTech / CleanTech bubble 

In Peter’s opinion the Government’s attempt to pick winners in the green technology space doomed it from the beginning and these companies failed because they neglected one or more of seven questions that every business must answer, being: 

1. Breakthrough Technology?

A 10x improvement is needed so that the benefit is abundantly clear.  A lot of greentech solutions were only a x1.5 improvement and most were worse!

2. Right Time?

2008 was extremely early in the cleantech market and while it was beginning to be talked about, it was very slow moving. 

3. Monopoly Potential?

There was intense competition in the cleantech market and entrepreneurs artificially inflated their supposed market share by distinguishing between types of solar production, not to mention renewables more generally and established energy holistically. 

4. Right People? 

Cleantech didn’t have enough technologically proficient advocates, and instead relied too heavily on suited corporate types playing the finance, government and sales angles.

5. Can You Sell It?

Cleantech companies focused on lobbying and Government funding and forgot to focus on providing solutions for customers to whom they’d ultimately have to sell their products. 

6. Will the Company Last 10/20 Years? 

Cleantech companies seemed oblivious to competition from much cheaper production in China, and from the new industry of fracking which made fossil fuels cheaper and many went out of business a few years after starting. 

7. Do You Have a Secret? 

Cleantech companies confused the social proof of the perceived desire for renewables (even Geroge Bush was hearlding it!) with a secret that they did not have. Their products were at best rudimentary and easily replicable by competitors. 

Taking aim at so-called ‘social entrepreneurship’, Peter states that it typically neither makes money nor advances actual or perceived social issues, and that creative monopolies which create a significantly better products is what is truly good for society.   

Peter then points to Tesla as a cleantech company that got the seven questions above right. For example: 

1. Tesla’s technology is so good other car companies use it;
2. Tesla got a ½ billion dollar subsidy at the right time before and after which it wasn’t available;
3. Tesla started with a market they could monopolise i.e. electric sports cars;
4. Tesla were led by a technologist and employed only the best of the best technologists; 
5. Unlike other car companies that rely on affiliated dealerships, Tesla owns the whole of its distribution chain to control the customer experience; 
6. It appears that Tesla will endure for 10 or more years; 
7. Tesla’s secret was to make cleantech needed to be fashionable and attractive so that the affluent could virtue signal with it.  

Peter is very bullish on the future of green technologies and green tech pointing to how those sceptical of the dotcom bust looked prescient then but foolish now. However, he cautions that:

“An entrepreneur can’t benefit from macro-scale insights unless his own plans begin at the micro-scale . . . no matter how much the world needs [clean] energy, only a firm that offers a superior solution for a specific energy problem can make money.” 

Zero to One by Peter Thiel Chapter 14: The unusual personality traits of founders 

Founders seem to be very unusual people; at least by conventional standards.  Perhaps that is the problem with conventional standards; perhaps it suits founders to exaggerate their personas; perhaps this is in part done for them by the media machine. 

Peter cautions that “The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.” However, Peter reminds us that we need mould breakers if we’re to have any chance of going from zero to one and that “. . .we [the public/non-founders] should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.” 

Zero to One Summary: Closing Thoughts 

Peter presents the following scenarios for future technological, and in his thinking therefore societal, development:

The fourth scenario taken to its logical conclusion is Ray Kurzweil’s so called ‘singularity’.  Without opining on whether or not the ‘singularity’ is even achievable, Peter closes his thesis with the warning that future progress cannot be taken for granted “. . .and that means we need to work to create it today.”  

In his final paragraph, Peter’s entreats us as follows: 

“Our task today is to find singular ways to create the new things that will make the future not just different, but better . . . The essential first step is to think for yourself only by seeing our world anew . . . can we both re-create it and preserve it for the future.”

The Thiel Fellowship gives $100,000 to young people who want to build new things instead of sitting in a classroom. See more at this link.

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