Zero to One: Summary and Review

Zero to One

Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel and Blake Masters

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Zero to One

Review

My main takeaway from this book is the idea of validated contrarianism. Not contrarianism for its own sake, but a dedication to searching for truth in a manner that seems low status from the outside.

I originally read this when it was a set of notes on Stanford’s CS183 class that Blake Masters posted to his website: blakemasters.com/peter-thiels-cs183-startup

Summary

Schools teach 1 to n, or globalization. How to take a product that is has a known market and scale it. This book is about 0 to 1, or how to take an idea of unknown value and prove that it has value.

How you can tell a startup idea is good:

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

Most people believe in x, but the truth is the opposite of x

The best startup ideas come from places where the truth exists, but is unexplored because people don’t believe in it.

Competition is for Losers

Successful companies build natural monopolies. Under traditional economics theory, perfect competition means no profits. So if you want to make more profits, you must be more monopolistic. This is confused because no company will admit to be a monopoly, in order to parry any antitrust inquiries.

A) You can appear to be more monopolistic than you are to investors by claiming to be a large fish in a small pond: our market is U.S. online advertising, the market size is $37 billion.

B) You can appear to be less monopolistic than you are to regulators by claiming to be a small fish in a large pond: our market is global advertising, the market size is $495 billion.

The problem for startups is they hear only publicly hear statement B and think this is the correct approach to building a startup, but it is not. You must start by capturing a niche market first before you expand, because the competition for large markets is too intense and you are too undifferentiated at first.

Definite optimism

Definite pessimism: The future will be worse than the present, and I know how we are actively making it worse.

Indefinite pessimism: The future will be worse than the present, but I don’t know exactly why or how it will get worse.

Indefinite optimism: The future will be better than the present, but I don’t know exactly why or how it will become better (e.g. investing in index funds)

Definite optimism: The future will be better than the present, and I know exactly how we can get there. (e.g. Modernism, the Apollo Program)

Today, there is too much indefiniteness. Definiteness is undervalued, and definite optimism doubly so, so the rewards are great if you take a definite optimism demeanor to your actions.

Power Laws

Venture capital doesn’t work the way you think it does, you think it’s that “1 company returns the whole fund”, but what this actually means is “you must try to lose as much money as you can on the other companies”, because your goal is to not miss the hits, instead of trying to find the hit.

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.

Cults

Startup cultures can be characterized as cults, because a focused concentration of definite optimism leads to everyone thinking the same way (which counterintuitively is necessary in the beginning to have the energy to push forward a focused results).

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.