Eric Button

Zero to One Book Notes

ero to One by Peter Thiel is one of the most pivotal books I've read. I'm on my 5th reading and every time I learn something new. Here are my detailed book notes.


Every moment in business happens only once. If you're copying Zuckerberg or Gates, you're not learning from them.

The result of fine-tuning existing ideas (vs. making bold bets and creating radically new businesses and things) threatens to result in a catastrophe far worse than the crisis of 2008.

Today's 'best practices' lead to dead ends; the best paths are new and untried.

If American business is to succeed, we will need miracles. And miracles = technology.

A formula for startup success necessarily can't exist. Being innovative has no prescribed route.

The single most powerful pattern, though: "successful people find value in unexpected places, and they do this by thinking about business from first principles, instead of formulas."

Chapter 1: The Challenge of the Future

Peter Thiel's job interview question: "What important truth do very few people agree with you on?"

Bad answers to this are either not in fact unpopular, or take one side in a familiar debate.

Good answers "are as close as we can come to looking into the future."

Vertical vs. Horizontal Progress: horizontal = copying, vertical = creating.

No reason why "technology" should be limited to computers. Technology = new and better ways of doing things.

Peter Thiel's own answer to the contrarian question: while most think that the future will be defined by globalization, technology (vertical progress) matters more.

In a world of scarce resources, globalization without new technology is unsustainable.

New technology tends to come from small groups of people bound together by a sense of mission.

Why not large companies? Bureaucracies shy away from risk, and entrenched interests can prevent change.

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.

Chapter 2: Party Like It's 1999

Conventional beliefs (like the late 90's tech bubble) only seem wrong in retrospect.

Also, the dot com crash distorts thinking around technology today; we need to question what we think we know about the past.

Dot com mania was intense but short (18 months, Sep 1998 to Mar 2000). Money everywhere, exuberance, sketchy characters.

PayPal's first idea: beam money from one PalmPilot to another—unsuccessful idea.

PayPal's pivot: money via email.

Their growth strategy: $10 sign-up bonus, $10 referral bonus.

The 2000 crash seemed to cast judgement on the technological optimism of the 90's, and resulted in smaller thinking and a "fundamentally indefinite" view of the future.

The crash resulted in flawed thinking that persists in tech today:

  1. Make Incremental Advances: Be more humble, don't have such big ideas
  2. Stay lean and flexible: Planning is arrogant and inflexible, so iterate instead
  3. Improve on the Competition: Don't try to create a new market, improve on existing products
  4. Focus on product, not sales: Don't worry about distribution, and the only sustainable growth is viral growth.

The opposite principles are probably more correct:

  1. It is better to risk boldness than triviality
  2. A bad plan is better than no plan
  3. Competitive markets destroy profits
  4. Sales matter just as much as product

The market high of March 2000 was obviously a peak of insanity; less obvious but more important, it was also a peak of clarity. People looked far into the future, saw how much valuable new technology we would need to get there safely, and judged themselves capable of creating it.

We still need new technology and may need some of that 1999-style hubris and exuberance to get it.

We must abandon the dogmas created after the crash.

"The most contrarian thing of all is not to oppose the crowd but to think for yourself."

Chapter 3: All Happy Companies are Different

The business version of the contrarian question: What valuable company is nobody building?

Question is harder than it looks, because a great company doesn't just create value—it captures some value as well.

Example of a bad business: airlines (they made $0.37 per passenger trip in 2012).

Example of a great business: Google (21% profits in 2012).

As a result, Google is 3x the value of all US airlines combined.

Under perfect competition, in the long run no company makes an economic profit.

The opposite of perfect competition: Monopoly.

Capitalism and competition are opposites.

The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don't build an undifferentiated commodity business.

Most businesses are much closer to the extremes of the monopoly-perfect competition spectrum than we realize. Why? both monopolies and undifferentiated businesses are incentivized to bend the truth.

Monopolies lie to protect themselves from antitrust.

Example: Google claims it is an advertising company, not a search engine company (where it owns majority market share).

Non-monopolies aim to differentiate themselves with their claims.

Example: Indian restaurant claims their naan is the best.

Monopolists will find the largest market possible to appear a small fish.

Non-monopolists will claim their dominance over an intersection of several markets.

Monopolies are better for company mission and employee satisfaction, as all value isn't bled away to competition.

Monopolies create an environment for positive creation. Example: Apple products

The history of progress is of incumbents being replaced by better monopolies.

Monopolies provide the incentive to innovate.

Monopolies give the ability to create long-term plans and engage in ambitious research.

The model of perfect competition is outdated and flawed, and does not reflect business accurately.

Metaphor: in physics, perfect equilibrium results in the heat death of the universe.

In business, equilibrium means stasis, and stasis means death.

Every new creation takes place far from equilibrium.

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.

All happy companies are different: each one earns a monopoly a by solving a unique problem.

All failed companies are the same: they failed to escape competition.

Chapter 4: The Ideology of Competition

Why is competition held up as good? It's rooted in ideology.

The education system is rooted in competition, and creates conformists competing for the same set of prizes.

All Rhodes Scholars had a great future in their past.

As Shakespeare illustrated, people fight because they are similar ("two households, both alike in dignity")

Real-world example: while Microsoft and Google focused on one-upping each other, Apple overtook them.

Non-conformists have an advantage—they are less driven to mimesis and competing for the same prizes as everyone else.

Competition can make people hallucinate opportunities where none exist (90's online pet store market).

In Feb 2000 Elon Musk and Thiel were both more scared of the impending tech bubble than they were about each other, so they negotiated a 50-50 merger.

Chapter 5: Last Mover Advantage

A great business is defined by its ability to generate cash flows in the future.

The value of a business today is the sum of all the cash it will generate in the future (and also discounting for the passage of time).

Old Economy businesses (newspapers, nightclubs, restaurants) are risky by this measure.

Most of a tech company's value will come at least 10 to 15 years into the future.

Many entrepreneurs succumb to "measurement mania"—they measure at-hand short-term metrics while overlooking deeper, harder-to-measure problems that threaten the business's durability.

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?

Every monopoly is unique, but they usually share some combinationof the following characteristics:

  1. Proprietary technology: the most substantive advantage because it is most difficult to replicate. (e.g. Google's search algorithms) Rule of thumb: it must be a 10x improvement over existing tech. Once you're 10x better, you escape competition (e.g. PayPal and also Amazon, offering 10x the number of books over a Barnes & Noble, and the iPad offering a 10x improvement over existing tablets)
  2. Network effects: paradoxically, you must start by dominating a small market (e.g. Facebook starting with Harvard)
  3. Economies of scale: a monopoly gets stronger as it scales. Software businesses are the best example—marginal cost of reproduction is near zero. A good startup should have the potential for great scale built into its first design.
  4. Branding: Polishing the surface only works if the underlying substance is great too. Beginning with brand over substance is dangerous.

Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market.

Always err on the side of starting too small.

If you think your initial market might be too big, it almost certainly is.

Perfect target market for a startup: small group of particular people concentratedtogether and served by few or no competitors.

Any big market is a bad choice, and a big market already served by competing companies is evenworse.

Scaling up: gradually expand to adjacent markets.

Good examples of scaling: Amazon with books, then other items. PayPal with eBay power sellers, then other hobbyist groups.

Sequencing markets correctly is underrated, and it takes discipline to expand gradually.

The most successful companies make the niche/market progression a part of their founding narrative.

Don't "disrupt." Disruption is becoming a buzzword but it is flawed because it views your product within the frame of competitors.

If you want to make something new, the act of creation is more important than the industries you hope to "disrupt."

If your company can be summed up by its opposition to already existing firms, it can't be completely new and it's probably not going to become a monopoly.

Good example: PayPal didn't seek to attack an incumbent, but rather expanded the market for payments. PayPal gave Visa far more business than it took.

Moving first is a tactic, not a goal.

Much better to be the last mover—to enjoy years of monopoly.

Chaper 6: You Are Not A Lottery Ticket

Luck or skill? The success of serial entrepreneurs (e.g. Jobs, Musk, Dorsey) suggests that skill plays a large part.

If you believe that fate controls you, why read this book?

An indefinite view of the future results in the current state of un-specialization, process over substance.

A definite view of the future results in specialization, creating a monopoly of one.

Four views:

  1. Indefinite Pessimism (Europe, present): Looks out at the bleak future but doesn't know what to do about it. Eurozone is in slow-motion crisis and bureaucratic drift.
  2. Definite Pessimism (China, present): Wealthy Chinese are trying to move their money outside China. There is a sense of worry about the future.
  3. Definite Optimism (U.S. 1950's-1960's): Example: the Empire State Building was built in under 3 years. People welcomed big plans.
  4. Indefinite Optimism (U.S. 1982-present): The future will be better, but we don't know exactly. Growth of finance tech and rearranging existing tech. Optimization over innovation.

A definitely optimistic world calls for underwater city engineers; indefinite optimism calls for more bankers and lawyers.

Finance epitomizes indefinite thinking, as it's the only way to make money when you have no idea how to create wealth.

Only in a definite future is money a means to an end instead of an end.

In politics, indefinite mindset causes elections to be about week-by-week public sentiment, instead of a 20-year vision of the future.

Instead of becoming the funder of great ideas, the government has become essentially a huge insurance provider

indefinite attitude. In philosophy, politics, and business, too, arguing over process has become  a way to endlessly defer making concrete plans for a better future.

Historically death has been viewed as something to indefinite outlook accepts death as inevitable.

Modern drug discovery is failing—Eroom's law (Moore's law spelled backwards) posits that the number of new drugs approved for every Billion dollars of R&D spend has halved every 9 years since 1950.

Americans aren't saving, and American companies are saving and not investing—due to an indefinite view of the future.

Of the four outlooks, Indefinite Optimism is the one that seems unsustainable—how can you attain the positive future if you no one plans for it?

Lean strategy is not an end.

Iteration without a bold plan will not lead you from zero to one.

A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen?

Steve Jobs forgot MVP's and rather executed multi-year plans to create amazing products. The greatest thing Jobs designed was his business.

Long-term planning is generally undervalued.

The iPod was designed as the beginning of a mobile future, but few saw this at first.

When a startup is acquired, it is almost always under- or over- valued: either the startup founder has run out of vision, or the startup founder doesn't want to sell and wants to continue the vision, in which case the company is undervalued.

A startup is the largest endeavor over which you can have definite mastery.

You can have agency not just over your own life, but over a small and important part of the world.

You are not a lottery ticket.

Chapter 7: Follow the Money

Money makes money.

Einstein: compound interest is the 8th wonder of the world. Message: never underestimate exponential growth.

Even VC's don't understand: we don't live in a normal world, we live under a power law.

The common VC error: assuming returns among portfolio companies will be distributed (i.e. that the best companies return, say, 4x)

This results in the "spray and pray" approach which usually results in a portfolio of flops.

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.

Founders Fund results corroborate this: the Facebook investment has returned more than all other portfolio companies.

The biggest secret in VC: the best investment in a successful fund equals or outperforms the rest of the fund combined.

This results in two rules for VC:

  1. Only invest in companies that have the potential to return the entire fund
  2. Because rule number 1 is so restrictive, there can't be any other rules

Example of a "failure": A16Z put $250k into Instagram, but that size of investment would require them to find 19 Instagrams just to break even.

VCs must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource.

Founders Fund: focus on 5-7 companies per fund.

Whenever you view each investment strictly from the view of whether it fits into a diversified hedging strategy, you're getting closer to viewing investing like buying a lottery ticket. And once you think that you're playing the lottery, you're psychologically preparing yourself to lose.

Why is this power law sometimes unclear to VC's? It's because winners only become apparent up to ten years into the future.

The power law in action: <1% of businesses are venture-backed, but 21% of the GDP is created by venture-backed businesses.

The top 12 tech giants are larger than the rest of tech combined.

Investors who understand the Power Law make as few investments as possible.

Life is not a portfolio. An entrepreneur cannot diversify himself across several companies.

You should not necessarily start your own company—due to the Power Law you can earn far more becoming an early employee at the next Google than you can by starting your own company.

The difference between companies dwarfs the roles inside a company.

Chapter 8: Secrets

Every one of today's most familiar ideas was once a secret. Example: the Pythagorean Theorem.

Most people act as if there are no secrets left to be discovered in this world.

If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista. 😂

In all fundamental thought there is a "zone of hard truths" which is deemed untouchable (evident in religion, environmentalism, free market theory).

Why is there an accepted view that there are no secrets left to be discovered? It could be that there are no uncharted places on a world map.

There are four social trends affecting this:

  1. Incrementalism: if you didn't go step by step, you don't receive credit (a pillar of the education system)
  2. Risk aversion: people are scared of being wrong. If your goal is to never make amistake in your life, you shouldn't look for secrets.
  3. Complacency: why search for new secrets if you can collect rents on the ones that already exist?
  4. Flatness: if it was such a good idea, surely someone else has thought of it.

Forty years ago it was easier to find cults—people were more open to the idea that there were secrets left to be discovered.

To say that no secrets exist today would be to say that we live in a society with no hidden injustices.

Disbelief in secrets leads to disbelief that there can be a bubble.

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

Many secrets left. We can cure cancer, dementia, all diseases of age and metabolic decay, better energy, faster travels, new frontiers.

Only by believing in and looking for ideas could Airbnb and Uber be started.

There are two kinds of secrets: secrets of nature, and secrets about people. So when thinking about which company to build, there are two distinct questions to ask:

  1. What secrets is nature not telling me?
  2. What secrets are people not telling me?

Secrets about people are generally under-appreciated, perhaps since there's no education requirement.

Look for secrets where no one else is looking.

Ask, are there any fields that matter but haven't been standardized or institutionalized? Example: nutrition—likely full of secrets.

If you find a secret, do you tell anyone? Or do you keep it to yourself?

Unless you have perfectly conventional beliefs, don't tell everyone.

Who do you tell? Tell a company.

Every great business is built around a secret that's hidden from the outside.

A great company is a conspiracy to change the world. Whoever you share your secret with becomes a fellow conspirator.

Chapter 9: Foundations

Thiel's Law: A startup messed up at its foundations cannot be fixed.

Like the USA, precedents set and decisions made in the beginning have lasting effects.

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 pre-history (don't meet at a networking event and start a company).

Distinguish between three concepts:

  1. Ownership: who owns the equity?
  2. Possession: who runs the company?
  3. Control: who formally governs the company's affairs?

Incentives should be aligned among all parties.

Every single member of the board matters—choose carefully.

A board of three is ideal, and should never exceed 5 (unless you're a public company).

On the bus or off the bus—everyone you involve with your company should be involved full-time or not involved at all (lawyers and accountants are exceptions).

Anyone who isn't drawing a salary or doesn't own stock options is fundamentally misaligned.

Working remotely should be avoided to avoid misalignment.

A company does better the less it pays the CEO.

In no case should the CEO of an early-stage venture-backed startup be paying himself more than $150,000.

Low CEO pay also sets the standard for the rest of the company. Example: Aaron Levie at Box paid himself less than everyone else in the company.

High cash compensation teaches employees to extract value from the company as it already exists, instead of making a bet on and building the company's future.

Startups don't need to pay high salaries because they can offer something better: part ownership of the company itself.

Giving everyone equal shares is a mistake.

Keep equity grants secret to reduce resentment.

Equity is often un-popular, but this reveals those who believe strongly enough in your company to appreciate it.

Chapter 10: The Mechanics of Mafia

Why work with a group of people who don't even like each other? Don't spend your time working with people you don't plan on working long-term with.

How Peter hired for the PayPal Mafia: they had to be talented, but they also had to be excited about working together specifically within that group.

Recruiting is a core competency that shouldn't be outsourced.

The first four or five employees might be lured by the promise of big equity chunks, but a useful question to ask is: why should the 20th employee join the company?

Even better question to ask: why should the 20th employee work here, instead of Google, with far better pay and prestige?

The only good answer to this question is one that is specific to your company, but two general kinds of good answers:

  1. An answer about the mission: why you are doing something important that wouldn't get done otherwise.
  2. An answer about the team: you should be able to answer why the company is a good match for him personally, and if you can't, it's probably not a good match.

Don't fight the perk war—it attracts the wrong employee.

Max Levchin: early startup employees should be as personally similar as possible.

Everyone should be sharply distiguished by her work—responsibilities should be clearly demarcated.

Best thing Peter did as a manager at PayPal: give each employee just one task that didn't overlap with any other task.

Most fights within a company happen as a result of two employees competing for the same responsibilities. Defining roles allows relationships to last and the company to survive.

Startups should be viewed like slightly less extreme versions of cults.

Chapter 11: If You Build It, Will They Come?

Even though sales is everywhere, most people underestimate its importance.

When engineers see salespeople laughing on the phone with customers or going to dinners they suspect no work is being done, but it takes hard work to make sales look easy.

"Salesman" can be a slur, but we only react badly to poor salesmen.

Like acting, sales works best when hidden.

It's better to think of distribution as something essential to the designof your product.

If you've invented something new but you haven't invented an effective way to sell it, you have a bad business—no matter how good the product.

Superior sales/distribution alone can create a monopoly, but the inverse is not true.

Customer Lifetime Value (CLV) must exceed Customer Acquisition Cost (CAC).

If avg. sales price is 7 figures or more, the deal will require close personalized attention.

Enterprise sales is often necessarily methodical.

Personal sales: start small, gain trust with small deals. i.e. start by selling to a small department in a company.

Distribution Doldrums: products with a price point around $1000 are difficult to sell, because they don't warrant personal attention, and marketing alone can't make the sale.

Marketing and advertising work for relatively low-priced products that have mass appeal but lack any method of viral distribution.

Advertising can work for startups, too, but only when your customer acquisition costs and customer lifetime value make every other distribution channel uneconomical.

Startups should resist the temptation to compete with big companies by doing elaborate TV spots or PR stunts.

A product is viral if its core functionality encourages people to sign up too.

Virality isn't just cheap—it's fast too.

Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.

Distribution follows a power law of its own—one channel will work far better than the others.

If you can get just one distribution channel to work, you have a great business. If you try several and don't nail one, you're finished.

There's a fundraising version to selling: clamor and frenzy is rarely an accident.

Selling your company to the media is a necessary part of selling it to everyone else.

You should never assume that people will admire your company without a public relations strategy.

Any prospective employee worth hiring will do his own diligence; what he finds or doesn't find when he googles you will be critical to the success of your company.

Chapter 12: Man And Machine

Computers are complements for humans, not substitutes.

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

Men and machines are good at fundamentally different things.

Humans have intentionality and make plans, but aren't good at processing large amounts of data. Computers are the opposite.

Human-computer complementarity was critical to the anti-fraud system that allowed PayPal to succeed, and it is the core product at Palantir.

Computers can find patterns that elude humans, but they don't know how to compare patterns from different sources or how to interpret complex behaviors.

Actionable insights can only come from a human analyst (or the kind of generalized artificial intelligence that exists only in science fiction).

Indefinite fears about the future shouldn't stop us from making definite plans today.

Chapter 13: Seeing Green

Cleantech turned into a bubble, and crashed because companies neglected one or more of the 7 questions that every business must answer:

  1. The Engineering Question: Can you create breakthrough technology insteadof incremental improvements?
  2. The Timing Question: Is now the right time to start your particularbusiness?
  3. The Monopoly Question: Are you starting with a big share of a smallmarket?
  4. The People Question: Do you have the right team?
  5. The Distribution Question: Do you have a way to not just create but deliveryour product?
  6. The Secret Question: Have you identified a unique opportunity that others don't see?

Any great business plan must address each of the seven questions above.

If you don't have great answers to these questions, you'll run into a lot of "bad luck" and your business will fail.

If you nail all seven, you will succeed.

A 20% product improvement is not sufficient—your claim will be assumed to be hyperbole.

Only with a 10X product improvement can you offer the customer transparent superiority.

Exaggerating your own uniqueness is an easy way to botch the monopoly question.

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?

Each of the casualties of the green tech boom and bust described itself using widely-accepted conventions; great companies have secrets—specific reasons for success that aren't readily visible.

Social Entrepreneurship doesn't work. Doing something different is what's truly good for society.

Chapter 14: The Founder's Paradox

Founders' personalities fall within an inverse bell curve.

Almost all successful founders are simultaneously insiders and outsiders.

We should be more tolerant of founders that seem extreme.

The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at anymoment—so be careful.

Don't overestimate your power as an individual.

The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.

An equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.

Conclusion: Stagnation or Singularity?

Four possible scenarios:

  1. Recurrent Collapse: alternating between prosperity and ruin
  2. Plateau: Globalization will continue, and the future will look a lot like the present.
  3. Extinction: uncontained global disaster
  4. Takeoff: accelerating takeoff towards a much better future

Recurrent collapse is unlikely, extinction results in no future to consider, and plateau threatens to result in increased conflict. That leaves the fourth scenario: create a much better future.

What matters more than the singularity is the stark choice we face today between the two most likely scenarios: nothing or something.

We can't take for granted that the future will be better—we have to actively create it.

The essential first step is to think for yourself.