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

by Peter Thiel

EVERY MOMENT IN BUSINESS happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.

Jeff Bezos says this often - to really create something new and innovate, copying others doesn't typically work. What works is Customer Obsession - obsessively solving problems people have. Goodreads was born this way, as were all the companies he lists in this annotation.

“What important truth do very few people agree with you on?”

I've heard Peter is famous for his contrarian thinking, and this is the quintessential question to suss out that kind of thinking. Remarkably hard to answer though! Some of mine: 1. Baseball stadiums in the US should all be converted to soccer - it’s the worlds sport. 2. People my age (in their 40's) will probably naturally live until their mid 100's. 3. We need less information not more. Most of us are consuming as much information as we can online, and it doesn't lead to what matters in life, nor does it lead to doing deep work, which is fulfilling. 4. Technology and AI and biotech will enable humanity to enter a renaissance in the coming decades.

My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more.

I would think a lot of people agree with this - no?

Our ancestors lived in static, zero-sum societies where success meant seizing things from others. They created new sources of wealth only rarely, and in the long run they could never create enough to save the average person from an extremely hard life.

The first step to thinking clearly is to question what we think we know about the past.

To build the next generation of companies, we must abandon the dogmas created after the crash. That doesn’t mean the opposite ideas are automatically true: you can’t escape the madness of crowds by dogmatically rejecting them. Instead 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.

Love this line "The most contrarian thing of all is not to oppose the crowd but to think for yourself." - it's not about doing what others do or don't do, but rather about independent thought.

if you want to create and capture lasting value, don’t build an undifferentiated commodity business.

Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.

More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.

This was one of the more interesting new ideas in this book - that we live in a competitive society, and that isn't conducive to innovation.

All Rhodes Scholars had a great future in their past.

lol

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

There is a strong human tendency to do this. It's hard to avoid - the only way is to truly start from first principles around something and do user research - it's a process.

In March 2012, eBay’s PayPal unit launched its own copycat card reader. It was shaped like a triangle—a clear jab at Square, as three sides are simpler than four.

"a clear jab"? Maybe to a mathematician...

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.

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. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market. The clearest way to make a 10x improvement is to invent something completely new. If you build something valuable where there was nothing before, the increase in value is theoretically infinite. A drug to safely eliminate the need for sleep, or a cure for baldness, for example, would certainly support a monopoly business.

10x is a lot. I've been playing with the new email service Superhuman - its marginally better than Gmail, but not 10x. Though if they nail email, maybe they could apply their improved UX to a slew of other products and rachet up. So can you start with 1.5x better and increase?

Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students—Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract all people of Earth. 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.

Sounds obvious, but this is a contrarian gem.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors. Any big market is a bad choice, and a big market already served by competing companies is even worse. This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market. In practice, a large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%.

Concentration is a key point I hadn’t appreciated - there has to be a easy way to reach all of them. In Goodreads' case, our initial set of reviewers were all using 2007 era blogging platforms, and had friends on their "blog rolls", and it was thus relatively easy to go viral in those communities.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

+1 to his earlier point to innovate. But he's right that MBA types and entrepreneurs now over-use the word disruption.

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. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision. In this one particular at least, business is like chess. Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”

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.

I remember learning this earlier and being surprised. Most successful funds are known by their one or two big hits.

At Founders Fund, we focus on five to seven companies in a fund, each of which we think could become a multibillion-dollar business based on its unique fundamentals.

EVERY ONE OF TODAY’S most famous and familiar ideas was once unknown and unsuspected.

Love that

The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. There is more to do in science, medicine, engineering, and in technology of all kinds. We are within reach not just of marginal goals set at the competitive edge of today’s conventional disciplines, but of ambitions so great that even the boldest minds of the Scientific Revolution hesitated to announce them directly. We could cure cancer, dementia, and all the diseases of age and metabolic decay. We can find new ways to generate energy that free the world from conflict over fossil fuels. We can invent faster ways to travel from place to place over the surface of the planet; we can even learn how to escape it entirely and settle new frontiers.

Good list. All science based though - nothing information based in this list.

You would notice that monopolists downplay their monopoly status to avoid scrutiny, while competitive firms strategically exaggerate their uniqueness.

Totally true!

Now when I consider investing in a startup, I study the founding teams. Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much.

Good tip to remember.

A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.

Whenever an entrepreneur asks me to invest in his company, I ask him how much he intends to pay himself. 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. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.

Good tip to remember.

From the start, I wanted PayPal to be tightly knit instead of transactional. I thought stronger relationships would make us not just happier and better at work but also more successful in our careers even beyond PayPal. So we set out to hire people who would actually enjoy working together. They had to be talented, but even more than that they had to be excited about working specifically with us. That was the start of the PayPal Mafia.

I believe in this. But I wonder if it makes it riskier to be less diverse for some people.

The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing.

We use this framework too - Amazon calls this Single Threaded Leaders.

EVEN THOUGH SALES is everywhere, most people underrate its importance. Silicon Valley underrates it more than most.

What nerds miss is that it takes hard work to make sales look easy.

People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians.” There’s a reason for these redescriptions: none of us wants to be reminded when we’re being sold.

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. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

Strong stance to say its "wrong". I tend to favor this viewpoint, certainly for the medium term it seems true, but hard to say in long term.

So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings. Maybe we still would have avoided these bad investments if we had taken the time to evaluate each company’s technology in detail. But the team insight—never invest in a tech CEO that wears a suit—got us to the truth a lot faster.

lol

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.

a great founder can bring out the best work from everybody at his company.