For the most ambitious survey of new things since “Let there be light”, Thiel discusses how to build the future. This book was very challenging, ranging from Thiel’s views on society, down to what kind of sales strategy your new business should have. In Zero to One, the smallest micro decision seems to be informed by your macro worldview, so knowing Thiel’s views are important on the topic of building a business. This book originated from notes that Blake Masters took when Thiel taught a class on startups, which is why he is credited as an author. As far as I can tell, all the views in this book are Thiel’s alone.
Start with Zero
What does zero look like? Basically, look around. This is reality without the next breakthrough business. In order to sharpen up the idea, the latest breakthrough business generally did not start with literally completely new technology. Rather, the startup is born from someone finding a new way of providing value where nobody else thought to look. Thiel says this happens by thinking from “first principles instead of formulas”. He further implies that the next Google will not be a search engine. I am taking this to mean that the principle of creating massive value means that you do something fundamentally new, rather than attempting to further iterate on a product that already exists. You cannot create the next Google by making a slightly better search engine. You could create the next Google by making a search engine 100 times as good.
A very good question posed in the first chapter is “What important truth do very few people agree with you on?” (5). Further refined, Thiel asks you to hold and publicly state a belief at a social cost to yourself. You get 0 points for saying that you tolerate gay people if you live in downtown San Francisco, but many points for stating the same as a member of ISIS. This question works better if you can take an action as a result. In the example of the day, “$GME is worth several hundred dollars, and I can solve a coordination problem with several thousand people on the internet to make it so” would be a maniacally insane belief a few months ago. While it is still crazy today (1/28/2021), a few people are going to gain massive wealth from holding that belief. Even more importantly, they are currently POPULAR ON THE INTERNET! I hope that works out for them. In more practical terms, this kind of thought can lead to startup creation if you believe something about the way the world works that others do not, and you can sell a product based on that belief. I might fall into the trap of pointing at history and claiming that I am right because of the way history actually worked out, but the pattern seems to be common. Amazon’s infinite bookstore on the internet was a crazy belief at the time, but today it is blindingly obvious that you should start a bookstore, then a cloud computing company in order to reap a massive profit.
Thiel distinguishes horizontal and vertical progress. He calls horizontal progress the idea of creating more of the same. Build more of today’s cars, computers, and fridges and eventually, everyone gets to have one. Vertical progress is a technological improvement, where the stuff is paradigmatically different. Build tomorrow’s nuclear-powered car, computer in your brain, or self-aware fridge, and the world works differently. Calling horizontal progress tantamount to globalization, Thiel states that the world has become increasingly globalized since the 1970s, with less technological progress. There is evidence to back him up in terms of lowering the rate of increase in productivity since that date, along with lower growth. With continuing trends, this would mean that eventually basically everywhere on Earth would have the same standard of living…or not. The United States has one of the highest standards of living on Earth and emits too many pollutants per capita for everyone to live in the same way. Are we doomed to face crisis after crisis, as lower-income countries rightly claim that they deserve higher standards of living?
I like Thiel’s answer to his own question: “…most people think the future of the world will be defined by globalization, but the truth is that technology matters more” (9). I hope he is right. With lower rates of vertical growth, clean, cheap, and reliable energy needs to come before the entire planet is polluting at the rate of the United States. What would I expect if most people think the future is defined by globalization? I suppose I should see lots of outsourcing, roboticization taking over factories, and increased job strain as competition becomes less between you and your neighbor and more between you and the absolute best on Earth. I would expect more calls for government regulation of various industries which cut off competition because more and more people become capable of competing for the same positions. I would not expect to see new, crazier weapons of war similar to the invention of the nuclear bomb. I would also not expect to see many new businesses nor technologies being built and providing value. I think this breaks down by industry, and levels of innovation in each of those industries. The phrase “Made in China” is very familiar to anyone who has bought clothing recently. One notable exception to outsourced clothing is Origin Maine, but one prominent piece of their advertising is that you get a warm feeling when you buy through the “Made in America” sewing. However, their products are more expensive, and if you need to pay if you want non-outsourced goods. I would guess most people will opt for the cheap stuff. This is the most absurd version of horizontal innovation, where the average company opts for the lowest possible production costs, whether that means unsafe working conditions, slave labor, or sacrificing any other values that cost money.
In areas where we do see massive technological innovation, the general image of those industries can be much more hopeful. Biotech companies releasing COVID vaccines can rightly claim to be at the forefront of medicine. SpaceX can rightly claim to be extremely entertaining, I mean, at the forefront of space flight. Prior to the 1970’s, maybe every industry looked like this. Consider the pace of change in computer science, with the newest, latest, greatest, technologies actually being much better. The lego blocks with which programmers can build massive constructs are getting much easier to use. Some AI research companies are seriously attempting to make the final lego, or artificial general intelligence. Innovation appears to be launching these industries forward in a way that is simply not happening elsewhere. Commensurately, these industries can have values, or at least claim to have them. They can work on climate change, social inequality, or whatever cause they like because they are not being drowned by competition.
What would our world look like if every industry was exactly like this, or even better? The pace of progress would be dizzying, and the world around us would be much more interesting. Lots of software innovations can be difficult to understand, but make the internet and programming work much better in general. Consider the kinds of applications that you can download today. You need relatively few programmers to produce a working phone app, so there is a staggering range of stuff. We can contrast this with buildings. I recently completed a remodel of a house, and many of the materials that were available to me were equally available a decade ago. Most confusing of all, I had to apply everything myself! The paint, nails, and boards did not just figure out where they were supposed to go. Compared to computer science, this makes no sense at all. Given the starting point of the mid 20th century, figuring out that computer science would make broad advances while buildings would not was hard. Drawing a line from past progress, through the current day, into a future where your microwave could spontaneously generate food only made sense.
Add One
Microsoft did not invent the computer, and Apple did not invent the smartphone. The difference between zero and one for those companies was a massive increase in value to the point where the difference in quality became a new product altogether. These companies do not strictly count as monopolies anymore, as all of their products have direct competitors. What is important is that they started out as monopolies, and this allowed them the capital to dominate a large share of a very profitable market. Thiel says “every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding” (48). Of course, the forbidden way of the monopoly is to regulate your competition out of existence. Much more interesting, all of Thiel’s ways of creating a monopoly are generally good things for consumers, unlike what we usually learn in basic economics.
Proprietary technology is the coolest way to create a monopoly. The technology does not necessarily need to be completely unique, but must be exceptional in comparison to other products. The way to make a monopoly in space flight would not be to make a reusable rocket like SpaceX, but to invent a way to bring mass into space that costs only a few dollars. Teleportation, space elevators, or anti-gravity are my favorite science fiction concepts that would do this. Proprietary technology has excellent spillover effects because the patent must eventually expire, then everyone can use the new technology as a matter of course. This links well with the idea of transformative scientific research. If you solve a really hard problem with practical applications, and do so for the first time in history, matching you will be borderline impossible.
Branding is the least fun way to build a monopoly, but Thiel later indites that mode of thought later in the book. While branding cannot replace having a good product, the brand is still extremely important, and can provide value to your customers. If you buy an iPhone, you don’t just call people, you are a creative genius! Whether or not that is true, companies want happy users. If someone can claim a positive identity by using a product, that is a good thing overall. I think I lose sight of the importance of building an identity, relative to building a product. Indeed, many fashionable companies have excellent brands which are built on excellent products, so branding can and should be used. The classic warning against branding is Theranos. That company successfully sold a brand to very wealthy investors, and much of the world for a very long time. They missed the detail where you need a working product, which led to an extremely disfunctional company burning through capital.
Competence for Nothing
Thiel begins to make a more direct appeal to his reader to do things that matter. Standard educational attainment is his first target. “By the time a student gets to college, he’s spent a decade curating a bewilderingly diverse resume to prepare for a completely unknowable future. Come what may, he’s ready—for nothing in particular” (61). I wonder how much of this effect is due to incentives to students. You literally do not have an option to fail history class if you decide you don’t like reading that kind of book. Worse still, any subject outside of your school curriculum is directly competing for your time against subjects which you need to learn in order to pass. Therefore, avoiding the implicit direction to get good grades is extremely important. Additionally, college is simply the next step after high school for many high achieving students. College entrance requires good grades, good SAT scores, good extracurriculars, and good morals (to their standards). If nobody tells you differently, you will simply listen to your parents, teachers, and community at large which tells you to go to college. Personally, I went to college without having any idea what I wanted to study. Luckily, you need to take so many general education classes that you do not even fall behind if you just go to college for a year without a reason. You just continue to generalize and generalize until you can do a mediocre job on any given task.
Sympathetically, we should be generalists when we are young. There are so many potential topics that are interesting, and the only way to know what you like is to do them. If you decide very early that you will be a writer, and forsake mathematics entirely, you might miss out on what could have been a very excellent and fulfilling career. Here, Thiel believes that this kind of optionality preserving, indefinite behavior is dangerous. If you spend too much time exploring your options, you never become truly great at anything, and will therefore never create anything worthwhile. I agree with Thiel that we should spend significantly less time exploring. How much material do you really remember from geography class, and has that really enriched you? Today, the way that I spend most of my time has nothing to do with geography, and I would have been much better served by learning to write better, or learning software engineering. Writing was vaguely taught at my school, in the context of guessing which conclusions that my English teacher wanted, then trying to write those down. Computer Science was never available, and I was not aware that you could do that until college. To that last point, perhaps I was just singularly unaware. Still, without the ability to explore new topics, I never would have discovered what I actually like doing.
Indefinition
Thiel talks about how our culture has made a bad transition from a state of definite optimism to indefinite optimism. We no longer have clear goals which we try to accomplish, hoping that the future will be better than the present. We still think the future might be better than the present, but make fewer plans to make it so. This section of the book is a bit like self help, with Thiel trying to convince his audience to make a definite plan of the future, then go execute. His version of self help is interesting because, unlike most other self-help gurus, he makes no reference to your emotions, your happiness, or even your golf swing. Instead, you should build a startup. Why? “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. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket” (81). Well sign me up for his secret island retreat! …Well, since he doesn’t do that, the only way to really help yourself is to gain agency.
Starting a company is an interesting way to carve out agency. I think the hard part, at least as far as I can tell, is actually having an idea about what to build. Without the idea, of course the future is indefinite. However much you like to build, you cannot do so without having a vision of what the future should be. Perhaps the lightning bolt of inspiration can be found systematically, but this seems like a very large obstacle to me. One thing that I want to try is asking other people if they have business ideas. I imagine that the total number of new software products does not live exclusively in the heads of people capable of building that software. Alternatively, I could also study the first principles of computing, and see if I could write better programs.
As an aside, he also talks about indefinite pessimists and definite pessimists in the context of national cultures. Perhaps his conclusions might be interesting, but he provides little evidence, so whether or not they are true is, and I’m kicking myself, very indefinite.
Profit by Gambling
After exhorting his audience to build, build, build, Thiel turns to venture capital. His belief is that power laws dominate company returns, where one company can be worth more than the rest of the fund combined. He proved the assertion with Facebook and his fund, where Facebook is worth a lot of money. That doesn’t do Facebook justice. Facebook is worth A TON of money. More cowbell. Facebook has more money than a lot of countries, and could probably purchase an army larger than many of their militaries. Given that Facebook is worth so much, any investment in early Facebook would have ballooned alongside it, and returned your whole investment. There is a similar vein of thought here between investing your money and investing your time. You should invest your money in very few places as a venture capitalist, and be very sure that your investments could result in multi-billion dollar enterprises that dominate the globe. Don’t hedge your bets by investing very broadly. I struggle to reconcile this with the folk investing wisdom that beating the stock market by picking individual stocks is extremely difficult. Instead, you should invest in a low cost index fund unless you have very good evidence that another strategy will beat the whole market in the long run. For most people, I imagine this is still a good strategy, unless your singular goal in life is to be the best trader possible. Venture Capital seems like a different animal because many investments will go to zero when the business closes, and a few become massive. A much higher risk environment would require much more intense thought and understanding. With so few startups eligible for investment, this might be doable.
Bomb Building as a Resume Builder
Founders are a very strange brand of human. Thiel’s own experience with founding PayPal bears this out. “Of the six people who started PayPal, four had built bombs in high school” (173). It’s funny that Thiel castigates normal extracurriculars, but points out that founders spend their free time flirting with death. Apart from rapid unscheduled disassembly projects, founders seem to be weird in general. Many of the normal qualities of a person get turned up to 11 and then some. We can easily find a normal jerk in our everyday lives, but if you want to reach Steve Jobs level of jerk, you need to go to a founder of a massive company. They aren’t all bad, but understanding the level of drive required to create an entirely new kind of company, and make it succeed, can be difficult.
Steve Jobs was not just an exclusive jerk either. That would have landed him in jail or killed. Instead, you can look at his speech introducing the iPhone and see massive charisma radiating over the audience. Thiel glorifies founders a lot in this chapter, and even directly compares mythological heroes to founders. However, he also cautions founders directly that they are not literally gods, and can only help other people do their best work, instead of causing companies to succeed themselves. He cautions the rest of society to be more tolerant of eccentric founders as well. Overall, “Don’t be a jerk” still applies to everyone. Society at large could benefit from being less extreme, alternately worshiping and hating founders of various companies. Instead, simply tolerating founders, however they choose to act, might prevent the more public meltdowns of public CEOs that we occasionally see.
A Brighter Future
Thiel ends his book with “Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1” (195). I like the premise of the book. It reads like a political manifesto, but there is never a pitch at the end to donate to a political figure, nor to vote a certain way. Instead, we can literally take action to help build or distribute new products and make the world a better place. Of course, not everything gets captured here. Sometimes you really do need good government, and sometimes the world doesn’t actually need a new product. Still, the idea of creating value for customers is much less corrosive than fighting for a political cause. Building a new company seems like one of the hardest careers possible, and even better, you don’t get a guarantee of success! The main benefit personally seems to be autonomy in what you want to do, and the whisper of a grateful and improved world lavishing you with riches and fame. We do not want a stagnant world, and not everything has been invented yet. We should hope for a better future, and take action to make it so.
Questions
After reading this book, I still have a few questions.
Is there a systematic way to figure out new ideas? Thiel mentions thinking from first principles. Other startup luminaries (Paul Graham) say that you should simply build something that you and your friends love. The hard part is that there are A LOT of first principles. Should we study physics, to know fundamental laws of nature and check to see if you could build a better product than what currently exists? Should we study biology, and see if a new drug has simply been overlooked? Should we study pure math, with the hope that we solve an extremely important and relevant problem? Reading this list, I think that any of these areas would work, but some are more difficult than others. Without easy access to capital, software is probably the best place to find new ideas. You only need to know how to code, and you can make almost arbitrarily complicated structures. On the other hand, the world’s greatest physicist could not build the next generation plane without money.
How do you evaluate a startup? In the book, Thiel states that too many businesses are being started, and very few have the potential to become true behemoths. How can you tell whether or not you are working on a revolutionary concept, or the latest iteration of pets.com? We have limited time and a single career, so a deep evaluation of the place where we work or invest is supremely important. I hope there is a better answer than pure intuition, because almost every founder is going to believe that their product will change the world.
What common traps can be avoided with respect to startups? Charlatans seem like the most newsworthy example, but how many times do startups fall victim to bad regulation, fierce competition, or accidentally expose themselves to very bad luck? Again, without the benefit of hindsight, many of today’s most valuable corporations seem to have strange business plans. First, you start a bookstore, then you create a massive amount of computing power, and finally you take over the world.
Are there good arguments against startups? I have been reviewing a lot of books which are very pro startup and pro growth, so I am wondering what the best counterarguments are. Debates like this should not seem so one-sided, so I feel like I am certainly missing something by being so strongly in favor of startups and growth.
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Peter Thiel is a very interesting character. He has very strong convictions which make me think he might be overstepping with respect to the actual evidence, but perhaps he is fighting pessimistic biases with optimistic biases. The book is almost a how-to manual on how to become filthy rich, ridiculously famous, and make the world a better place. If any good businesses were started due to this book, then the words within paid for themselves many times over, and I sincerely hope that is true.