Ten Takeaways from Zero to One
Zero to One started as a class Peter Thiel taught at Stanford in 2012. Blake Masters took notes that were widely circulated. Peter then worked with him to revise the notes into the book released in 2014. Below I’ve provided 20 Key Takeaways from a phenomenal book worth reading in full.
About Peter Thiel
Peter Thiel was born in Frankfurt, Germany, in 1967. He is now a citizen of Germany, the United States and New Zealand. His family moved to Cleveland when he was an infant, and then lived in South Africa and Namibia before settling in California at 10. He was valedictorian of his high school and went to Stanford where he studied philosophy and then Stanford law. After failing to get a Supreme Court clerkship, he briefly worked at Sullian & Cromwell, as a speech writer for the Secretary of Education, and as a derivatives trader at Credit Suisse before founding Thiel Capital in 1996 with friends and family money. He co-founded PayPal in 1999 with Max Levchin, first as an investor and then CEO. PayPal sold to eBay in 2002 for $1.5BN after having merged with Elon Musk’s x.com, netting him $55 MM. He then founded Clarium Capital, a global macro hedge fund, where he is still President. Helped launch Palantir where he is the Chairman. Founders Fund, a venture capital firm where he’s a partner. Valar Ventures, Mithril Capital. He was a part-time partner at YC from 2015-2017, likely due to his prominent support for Donald Trump. Through the Thiel fellowship, he pays promising college students $100,000 to drop out and focus on building something. He funds research in AI, life extension, and sea steading. He also notoriously funded the Hulk Hogan lawsuit that bankrupted Gawker. He is a billionaire, mostly due to his 2004 investment of $500,000 for 10.2% of Facebook, which he largely liquidated in 2012.
Ten Takeaways
Leverage Thiel’s contrarian questions in interviewing or assessing business ideas.
“WHENEVER I INTERVIEW someone for a job, I like to ask this question: “What important truth do very few people agree with you on?”
This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius”
“THE BUSINESS VERSION of our contrarian question is: what valuable company is nobody building? This question is harder than it looks, because your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create”
2. Startups can move faster than legacy organizations because of their size and lack of hierarchy.
“it’s hard to develop new things in big organizations, and it’s even harder to do it by yourself. Bureaucratic hierarchies move slowly, and entrenched interests shy away from risk. In the most dysfunctional organizations, signaling that work is being done becomes a better strategy for career advancement than actually doing work (if this describes your company, you should quit now).”
3. Monopolies are the key to profitable business.
“The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.”
“What does a company with large cash flows far into the future look like? Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding”
“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”
4. Build for a niche customer that will be passionate about your product.
“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”
5. Venture investments follow power laws for returns.
“venture returns don’t follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others. If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you’ll miss those rare companies in the first place.”
“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.
This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. (Even quite successful companies usually succeed on a more humble scale.) This leads to rule number two: because rule number one is so restrictive, there can’t be any other rules.”
6. There are also power laws to consider in founding a company.
“If you do start your own company, you must remember the power law to operate it well. The most important things are singular: One market will probably be better than all others, as we discussed in Chapter 5. One distribution strategy usually dominates all others, too—for that see Chapter 11. Time and decision-making themselves follow a power law, and some moments matter far more than others—see Chapter 9.”
7. There are seven key questions to assess in investing in startups (or founding).
“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”
8. Startup structures and incentives are critical to their success.
“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.”
9. Limited salary and high equity compensation are critical in startups.
“In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary. It doesn’t matter if he got used to making much more than that at Google or if he has a large mortgage and hefty private school tuition bills. If a CEO collects $300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively. A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole”
“Equity is the one form of compensation that can effectively orient people toward creating value in the future.”
10. Startups are too difficult to handle differing perspectives, so you should hire people with similar personalities.
“Why work with a group of people who don’t even like each other? Many seem to think it’s a sacrifice necessary for making money. But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational. Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well—even in purely financial terms.”
“Max Levchin, my co-founder at PayPal, says that startups should make their early staff as personally similar as possible. Startups have limited resources and small teams. They must work quickly and efficiently in order to survive, and that’s easier to do when everyone shares an understanding of the world. The early PayPal team worked well together because we were all the same kind of nerd. We all loved science fiction: Cryptonomicon was required reading, and we preferred the capitalist Star Wars to the communist Star Trek. Most important, we were all obsessed with creating a digital currency that would be controlled by individuals instead of governments. For the company to work, it didn’t matter what people looked like or which country they came from, but we needed every new hire to be equally obsessed.”