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

by Peter Thiel

After all, less than 1% of new businesses started each year in the U.S. receive venture funding, and total VC investment accounts for less than 0.2% of GDP. But the results of those investments disproportionately propel the entire economy. Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP. Indeed, the dozen largest tech companies were all venture-backed. Together those 12 companies are worth more than $2 trillion, more than all other tech companies combined.

The power law is not just important to investors; rather, it’s important to everybody because everybody is an investor.

investors who understand the power law make as few investments as possible.

But life is not a portfolio: not for a startup founder, and not for any individual. 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.

Our schools teach the opposite: institutionalized education traffics in a kind of homogenized, generic knowledge. Everybody who passes through the American school system learns not to think in power law terms.

Every university believes in “excellence,” and hundred-page course catalogs arranged alphabetically according to arbitrary departments of knowledge seem designed to reassure you that “it doesn’t matter what you do, as long as you do it well.” That is completely false. It does matter what you do. 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.

in a power law world, you can’t afford not to think hard about where your actions will fall on the curve.

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

You can achieve difficult things, but you can’t achieve the impossible.

WHY AREN’T PEOPLE LOOKING FOR SECRETS? Most people act as if there were no secrets left to find.

Religious fundamentalism, for example, allows no middle ground for hard questions: there are easy truths that children are expected to rattle off, and then there are the mysteries of God, which can’t be explained. In between—the zone of hard truths—lies heresy.

Free marketeers worship a similar logic. The value of things is set by the market. Even a child can look up stock quotes. But whether those prices make sense is not to be second-guessed; the market knows far more than you ever could.

Why has so much of our society come to believe that there are no hard secrets left? It might start with geography. There are no blank spaces left on the map anymore.

the unknown seems less accessible than ever.

four social trends have conspired to root out belief in secrets. First is incrementalism. From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade. If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit

Second is risk aversion. People are scared of secrets because they are scared of being wrong.

The prospect of being lonely but right—dedicating your life to something that no one else believes in—is already hard. The prospect of being lonely and wrong can be unbearable.

Third is complacency. Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done?

Fourth is “flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.”

How must you see the world if you don’t believe in secrets? You’d have to believe we’ve already solved all great questions.

To say that there are no secrets left today would mean that we live in a society with no hidden injustices.

The same was true of housing in 2005: Fed chairman Alan Greenspan had to acknowledge some “signs of froth in local markets” but stated that “a bubble in home prices for the nation as a whole does not appear likely.” The market reflected all knowable information and couldn’t be questioned. Then home prices fell across the country, and the financial crisis of 2008 wiped out trillions. The future turned out to hold many secrets that economists could not make vanish simply by ignoring them.

Having abandoned the search for technological secrets, HP obsessed over gossip. As a result, by late 2012 HP was worth just $23 billion—not much more than it was worth in 1990, adjusting for inflation.

You can’t find secrets without looking for them.

If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.

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 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. But we will never learn any of these secrets unless we demand to know them and force ourselves to look.

There are two kinds of secrets: secrets of nature and secrets about people. 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.

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?

This is why physics PhDs are notoriously difficult to work with—because they know the most fundamental truths, they think they know all truths.

Secrets about people are relatively underappreciated. Maybe that’s because you don’t need a dozen years of higher education to ask the questions that uncover them: What are people not allowed to talk about? What is forbidden or taboo?

Sometimes looking for natural secrets and looking for human secrets lead to the same truth. Consider the monopoly secret again: competition and capitalism are opposites. If you didn’t already know it, you could discover it the natural, empirical way: do a quantitative study of corporate profits and you’ll see they’re eliminated by competition. But you could also take the human approach and ask: what are people running companies not allowed to say? You would notice that monopolists downplay their monopoly status to avoid scrutiny, while competitive firms strategically exaggerate their uniqueness. The differences between firms only seem small on the surface; in fact, they are enormous.

The best place to look for secrets is where no one...

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.

EVERY GREAT COMPANY is unique, but there are a few things that every business must get right at the beginning. I stress this so often that friends have teasingly nicknamed it “Thiel’s law”: a startup messed up at its foundation cannot be fixed.

As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.

Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.

Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice.

It’s very hard to go from 0 to 1 without a team.

anarchic companies miss what James Madison saw: men aren’t angels.

To anticipate likely sources of misalignment in any company, it’s useful to distinguish between three concepts: • 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?

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.

This is why it’s crucial to choose wisely: every single member of your board matters. Even one problem director will cause you pain, and may even jeopardize your company’s future.

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

By far the worst you can do is to make your board extra large.

huge board will exercise no effective oversight at all; it merely provides cover for whatever microdictator actually runs the organization. If you want that kind of free rein from your board, blow it up to giant size. If you want an effective board, keep it small.

As a general rule, everyone you involve with your company should be involved full-time.

However, 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.

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.

A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.