The book was adapted from a startup class Peter Thiel taught at Stanford in 2012. Blake Masters, co-author and student of that class, published his original notes here that formed the basis of Zero to One.
Party Like It’s 1999
- Focus on product, not sales. If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.
- The most contrarian thing of all is not to oppose the crowd but to think for yourself.
All Happy Companies Are Different
- This means that even very big businesses can be bad businesses. For example, U.S. 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.
- Google makes so much money that it’s now worth three times more than every U.S. airline combined.
- 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.
- The dynamism of new monopolies itself explains why old monopolies don’t strangle innovation. With Apple’s iOS at the forefront, the rise of mobile computing has dramatically reduced Microsoft’s decades-long operating system dominance.
- In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.
The Ideology of Competition
- 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.
- …be less afraid to pursue those activities single-mindedly and thereby become incredibly good at them.
- Consider the Shakespearean conflict between Larry Ellison, co-founder and CEO of Oracle, and Tom Siebel, a top salesman at Oracle and Ellison’s protégé before he went on to found Siebel Systems in 1993. Ellison was livid at what he thought was Siebel’s betrayal.
- Ellison sent truckloads of ice cream sandwiches to Siebel’s headquarters to try to convince Siebel employees to jump ship. The copy on the wrappers? “Summer is near. Oracle is here. To brighten your day and your career.”
Last Mover Advantage
- Will this business still be around a decade from now?
- As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
- Paradoxically, then, network effects businesses must start with especially small markets.
- 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.
- A good startup should have the potential for great scale built into its first design.
- Therefore, every startup should start with a very small market.
- The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
- eBay also started by dominating small niche markets. When it launched its auction marketplace in 1995, it didn’t need the whole world to adopt it at once; the product worked well for intense interest groups, like Beanie Baby obsessives. Once it monopolized the Beanie Baby trade, eBay didn’t jump straight to listing sports cars or industrial surplus: it continued to cater to small-time hobbyists until it became the most reliable marketplace for people
You Are Not a Lottery Ticket
- After a brief pessimistic phase in the 1970s, indefinite optimism has dominated American thinking ever since 1982.
- To an indefinite optimist, the future will be better, but he doesn’t know how exactly.
- Instead of working for years to build a new product, indefinite optimists rearrange already-invented ones.
- Recent graduates’ parents often cheer them on the established path. The strange history of the Baby Boom produced a generation of indefinite optimists so used to effortless progress that they feel entitled to it.
- 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. If they don’t go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers. And once they arrive at Goldman, they find that even inside finance, everything is indefinite. It’s still optimistic—you wouldn’t play in the markets if you expected to lose—but the fundamental tenet is that the market is random; you can’t know anything specific or substantive; diversification becomes supremely important.
- Only in a definite future is money a means to an end, not the end itself.
- The philosophy of the ancient world was pessimistic: Plato, Aristotle, Epicurus, and Lucretius all accepted strict limits on human potential. The only question was how best to cope with our tragic fate. Modern philosophers have been mostly optimistic. From Herbert Spencer on the right and Hegel in the center to Marx on the left, the 19th century shared a belief in progress.
- Observes that the number of new drugs approved per billion dollars spent on R&D has halved every nine years since 1950.
- Darwin himself wrote that life tends to “progress” without anybody intending it. Every living thing is just a random iteration on some other organism, and the best iterations win.
- Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes.
- When a big company makes an offer to acquire a successful start-up, 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.
- A business with a good definite plan will always be underrated in a world where people see the future as random.
- It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.
Follow the Money
- MONEY MAKES MONEY. “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25: 29). Albert Einstein made the same observation when he stated that compound interest was “the eighth wonder of the world,” “the greatest mathematical discovery of all time,” or even “the most powerful force in the universe.”
- “Pareto principle,” or the 80-20 rule, when he noticed that 20% of the people owned 80% of the land.
- 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.
- $ 250,000 in Instagram in 2010. When Facebook bought Instagram just two years later for $ 1 billion, Andreessen netted $ 78 million—a 312x return in less than two years. That’s a phenomenal return, befitting the firm’s reputation as one of the Valley’s best.
- 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.
- The power law means that differences between companies will dwarf the differences in roles inside companies.You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $ 35 million as of this writing).
- As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique.
- The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.
- 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?
- The best place to look for secrets is where no one else is looking. Most people think only in terms of what they’ve been taught; schooling itself aims to impart conventional wisdom. So you might ask: are there any fields that matter but haven’t been standardized and institutionalized? Physics, for example, is a real major at all major universities, and it’s set in its ways. The opposite of physics might be astrology, but astrology doesn’t matter. What about something like nutrition? Nutrition matters for everybody, but you can’t major in it.
- The CEO of a huge company like General Motors, for example, will own some of the company’s stock, but only a trivial portion of the total. Therefore he’s incentivized to reward himself through the power of possession rather than the value of ownership.
- You’re either on the bus or off the bus.
- A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups.
- The graffiti artist who painted Facebook’s office walls in 2005 got stock that turned out to be worth $ 200 million.
The Mechanics of Mafia
- “Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture.
- 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.
- Two general kinds of good answers: answers about your mission and answers about your team.
- People at a successful start-up are fanatically right about something those outside it have missed.
If You Build It, Will They Come?
- Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.
- The Engineering Question - Can you create breakthrough technology instead of incremental improvements?
- The Timing Question - Is now the right time to start your particular business?
- The Monopoly Question - Are you starting with a big share of a small market?
- The People Question - Do you have the right team?
- The Distribution Question - Do you have a way to not just create but deliver your product?
- The Durability Question - Will your market position be defensible 10 and 20 years into the future?
- The Secret Question - Have you identified a unique opportunity that others don’t see?
- At Founders Fund, we saw this coming. The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologists wear T-shirts and jeans. So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings.
- Every entrepreneur should plan to be the last mover in her particular market. That starts with asking yourself: what will the world look like 10 and 20 years from now, and how will my business fit in?
- Whatever is good enough to receive applause from all audiences can only be conventional, like the general idea of green energy.
- 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.
- But when indefinitely optimistic investors betting on the general idea of green energy funded cleantech companies that lacked specific business plans, the result was a bubble.
- But a valuable business must start by finding a niche and dominating a small market.
Conclusion: Stagnation or Singularity?
- Whether we achieve the Singularity on a cosmic scale is perhaps less important than whether we seize the unique opportunities we have to do new things in our own working lives.
- 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.