Zero to One: Notes on Startups, or How to Build the Future

“Today’s ‘best practices’ lead to dead ends; the best paths are new and untried.”

As they perfect their sales and development departments, big companies become self-satisfied and, in a sense, lazy. Breakthroughs are hard, and it’s tempting to rest on one’s laurels, but that way lies decay and oblivion in the modern marketplace. Repeating the same old moves leads to marginalization.

“[…] 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.”

The hard part about going from nothing to something is inventing it. It’s hard because there’s no pathway to creativity. If there were, it wouldn’t be creative but merely repetitive. True innovation appears as a sudden insight, something that shows up out of the blue. Ultimately, there’s no way to force or calculate invention, but innovators can nurture the conditions that help them think creatively. A good way to begin is to question one’s assumptions about the principles that, so far, have guided work in one’s field.

“Whenever I interview someone for a job, I like to ask this question: ‘What important truth do very few people agree with you on?’ […] Brilliant thinking is rare, but courage is in even shorter supply than genius.”

Most people don’t want to stray too far from the accepted beliefs of the groups they belong to. Having a distinctly different view from everyone else often is taken as a sign of disloyalty or wrongheadedness. It’s the dissidents and creative thinkers, though—unafraid of the loneliness of independent thought—who create the new ideas and products and services that improve the world.

“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.”

Most of the technological wonders of recent decades have come from improvements in computer technology. Other areas, Thiel believes, lag behind, and, unless innovators outside of the Silicon Valley IT world come forward with new ideas and products, America will lose its edge, sink into stagnation, and fall behind more innovative countries.

“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.”

Theil’s takeaway from the 2000 dot-com collapse was to invest thoughtfully but to continue taking risks where appropriate. On the other hand, most businesses learned to be overcautious, which le, not to innovation and improved sales, but to lack of vision, lack of planning, big fights over tiny market shares, and fear of the expense of marketing. Thiel’s precepts are tailored not to booms and busts, but to the ever-growing need for strongly innovative products.

“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”

What really matters isn’t signaling your acceptability but establishing the new territory that you own. Instead of blending in—with products that ape other offerings and with ideas like everyone else’s—innovators must walk their own path. They don’t need automatically to reject the wisdom of others, but they must learn to think carefully and not accept popular ideas at face value. Independent thought isn’t always correct, but that’s where the innovations come from.

“Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.”

People think every big company makes lots of money, but those that compete with identical products—airlines, gas stations, grocery stores, even movie theaters—must offer the lowest possible prices, which erases any chance of making a profit. Gas stations and movie exhibitors earn almost nothing on their primary commodity; they make up for it by selling snacks, to the point where they’re both really in the snack business. Thiel urges startups to find ways to be unique so that people come to them for what they really want. Investors in those businesses will get excellent returns.

“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.”

Perfect competition makes a company’s products into commodities. Everyone is selling basically the same thing, which drives down prices until no one can do better than break even. When money concerns preoccupy this much of a company’s energy, there’s no room for innovation or creative thinking.

“Tolstoy opens Anna Karenina by observing: ‘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.”

For Thiel, being in business is not inherently fulfilling, and even being an active competitor in the market is not a determinant of success. This quote bolsters his creative monopoly concept; only through creative thought, innovation, and unique outputs can a company and its workers find fulfillment.

“War metaphors invade our everyday business language: we use headhunters to build up a sales force that will enable us to take a captive market and make a killing. But really it’s competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.”

Companies are so immersed in the idea of cutthroat competition that they fight over small gains of market share against nearly identical companies. Business exalts a culture of fighting, and there’s a lack of stress on originality. Instead, corporations glorify victory, but the victory gained through competition is short lived. The real victory, for Thiel, is creating something so new that it stands alone.

“Statistics doesn’t work when the sample size is one.”

It’s hard for companies to predict how they’ll do with a given marketing effort; every firm is different, and every product launch is unique. This also makes it hard to judge individual success: They might have the best business idea, or maybe they launched at the perfect moment, or they had connections, or they just got lucky. Thiel recognizes that without data, there’s no way to put successes or failures in context.

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

According to Thiel, whole generations of Americans have grown up seeing a lack of real innovation. Most careers, especially in finance, simply take advantage of existing progress; few become the engineers and designers needed to create truly remarkable products. The older culture of innovation has been replaced with a one focused on maximizing returns and making incremental increases in profitability through law and reinvestment.

“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.”

Thiel contrasts Darwinian evolutionary theory with the Christian belief that God deliberately created a perfect world, and then extends this metaphor to the business realm. If firms evolve in the same way nature does, they rely on incremental improvements and random chance and progress takes a long time. Thiel believes businesses should cast aside this process in favor of intelligent design; think of something totally new, build it immediately, and quickly change the world.

“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.”

People want to change the world, but that often involves politics and trying to change the minds of those who are reluctant to alter their course. Starting a company is also hard, but it offers its founders the possibility of bringing something worthwhile to the world. This offers a distinct advantage: Whereas few people want to change themselves, everyone is interested in products that make their lives better, and when such products quietly change the users, they change the world.

“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.”

Investing in startup companies follows different rules than for other types of investment. Nearly all startups fail, but here and there one of them becomes spectacularly successful. Here, Thiel emphasizes the importance of calculated risk—by choosing wisely, a good investment will make up for bad ones. Many investors fail by spreading their money across too many unlikely business startups, and usually lose most or all of their funds.

“Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know. So who do you tell? Whoever you need to, and no more. In practice, there’s always a golden mean between telling nobody and telling everybody—and that’s a company. The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.”

Above all, most people seek out stability, and it can be tough to convince people to take a risk. A startup can spur societal change if they adopt unconventional ideas—in secret at first, to prevent detraction—and then suddenly and decisively launch a product that incorporates those principles and make life better for those who use it. Through use, the new idea can bypass fear. When those who would have opposed it watch the new product take the world by storm, they’ll change course and insist that they knew all along it was a good idea.

“[…] ‘Thiel’s law’: a startup messed up at its foundation cannot be fixed.”

According to Thiel, a well-run company must fulfill several conditions in order to be successful at all. These conditions apply to all startups, regardless of their products. Above all, the participants’ values and motives must be aligned: They’re building a great future together, not a short-term cash cow. At the outset, decisions on who to hire, how to organize them, and how to motivate them are critical; mistakes in these areas will cling to and haunt the company, hobbling it as long as it exists.

“The first team that I built has become known in Silicon Valley as the ‘PayPal Mafia’ because so many of my former colleagues have gone on to help each other start and invest in successful tech companies. We sold PayPal to eBay for $1.5 billion in 2002. Since then, Elon Musk has founded SpaceX and co-founded Tesla Motors; Reid Hoffman co-founded LinkedIn; Steve Chen, Chad Hurley, and Jawed Karim together founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp; David Sacks co-founded Yammer; and I co-founded Palantir. Today all seven of those companies are worth more than $1 billion each.”

Thiel’s work with famous startups is one of the biggest success stories in the history of high technology. He presents his résumé at this later point in the book to back up the advice he’s been giving throughout; ideas like the creative monopoly and doing away with competition are unusual and maybe even frightening, but they are principles that have led to Thiel’s own success.

“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.”

Though it’s often hidden, sales and marketing are vital processes that connect customers to products. As much as a product must be supremely good to stand out, the methods of marketing it should also be eye-catching and uniquely compelling.

“Everybody has a product to sell—no matter whether you’re an employee, a founder, or an investor. It’s true even if your company consists of just you and your computer. Look around. If you don’t see any salespeople, you’re the salesperson.”

Thiel disputes the myth that great things sell themselves. In a noisy world, people are unlikely to know about a new product or service unless the producer announces it. Individuals who have things to offer must do this on their own until their product or service catches on and they can hire marketers to help them. This can be extended beyond physical products; if you’re applying for jobs, trying to attract new clients, or trying to get into a prestigious school, you need to know how to market yourself.

“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?”

These seven questions, which Thiel asks businesses that specialize in environmental issues, also serve as an outline of the book’s basic principles for successful startups. A firm that can answer confidently all seven queries is as well-positioned for a great outcome as any business can be. Some, though, can be very hard to answer: Inventing a truly new and worthwhile product, picking the right team, and delivering, or marketing, the product are especially hard to do and hard to judge ahead of time.

“Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.”

This quote neatly encapsulates the main theme of the book: Original thinking bests conventional thought, and exceptionally useful new products will appear out of nowhere to take the profits. The world likes agreement, but it buys solutions. Being wrong in the crowd often means being right in the marketplace.

“Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at his company.”

Thiel emphasizes that it takes a creative, eccentric, complicated person to found a great company, but they must also be able to manage people and enable them to contribute their own genius to the firm’s success. It’s a delicate balancing act to both inspire and drive a startup toward greatness, and there’s always the risk that the inspiration and energy involved can prove too intense and volatile. Creativity, and the often-eccentric emotional ground from which it sprouts, require careful nurturing.