Zero to One

Book Written by Peter Thiel

BOOK SUMMARY
BY SUSHANT DAYAL
Chapter 1: The Challenge of
the Future
 Progress is split into 2 distinct forms.

1. Horizontal Progress is when small incremental

progress is made in a field. In terms of economic
activity, companies which follow this pattern simply
copy things that work. This pattern is one to many.
 Copying things that work, going from one to many
1 -> n

 2. Vertical Progress is when dimension shifting

progress is achieved in a field. This is like a 10x
effect, a progress which gives the company behind
it a unique competitive advantage. Vertical
progress can be achieved either by inventing
something completely new, or by tremendous
unusual improvement in a field. This pattern Zero
to One, future is built through Zero to One type of
progress, much like the moment of divine creation
or Big Bang.
 Inventing new things, going from Zero to One
0 -> 1
 Chapter 2: Party Like It's
1999
➢ Psychology of both the entrepreneurs and investors
behind dot com bubble in the late 1990s was
interesting

➢ During the dot com mania, dozens of launch parties

were held every week in San Francisco. There was an
abundance of money in the valley along with
exuberant often sketchy people chasing it.

➢ Google.com increased valuation by half overnight. If

the folly of so called smart money was not enough,
public markets didn't know any better either.

➢ Dot com companies' losses increased as they grew.

Defying all laws of logic, public investors still kept
throwing money at such companies further inflating
their share prices. Music was loud and drinks
aplenty, there was no need to be concerned, party
was going strong.
 4 main learnings taken by
Entrepreneurs and investors
from this event were as
follows:

1. Incremental changes are the safe path:

 Grandiose plans of many dotcom companies failed

horribly. Investors should be suspect of anyone
who claim of unheard, unseen greatness. Those
who want to change the world should be equally
humble as their ambitions.

2. Lean and Flexible:

 Planning is being arrogant; startups should stay

flexible and lean. Make incremental changes,
experiment and align course accordingly.
 Learnings taken by
entrepreneurs and
investors from this event:

3. Improve on competition:

 Small startups should not try to create new

markets from the ground up, instead focus on
making improvements on established markets.

4. Product is more important than sales

 Technology is more about product than sales, so

focus on your product. If your product can't sell
itself, it's not good enough. Dot com companies
spent so much money on advertising, only viral
effects are worth the money.
Chapter 3: All Happy
Companies Are Different
➢ One of the biggest economic lie we are told by the
economists is the state of perfect competition
which leads to market equilibrium.

➢ The reality is, there is no perfect competition,

competition eats away from the same pool of
potential profits. In a market with perfect
competition, nobody makes any money.
Economists are eager to advocate market
equilibrium not because it makes economical
sense, but it is easier to model.

➢ Google’s Don't be evil has become company's

motto. From the outset they are advocating
responsible business ethics, which sounds great.
However, it's made possible due to the fact that
Google enjoys a monopoly in the internet search
market. When was the last time you heard
someone say let me Bing that? Google earns 78%
of $48.7B US search ad revenues.
Non-Monopolist’s

➢ Non-monopolist exaggerate their uniqueness by

describing their target market as the intersection
of various smaller markets.

➢ Imagine James who moved to Bay Area from

London, and he wants to open a restaurant in Bay
Area serving British food.

➢ Bay Area ∩ Restaurants ∩ British Food

➢ James is a non-monopolist. By defining his target

market in the way he does, he ensures
"uniqueness" but he doesn't ask the questions
such as "how many other restaurants are there in
Bay Area" to get a rational grip on the degree of
competition.
 Monopolist’s

➢ In contrast, monopolist disguise their monopoly

status by describing their target market as the
union of large sectors.

➢ Google is an internet technology company, their

target market is something like this.

➢ Internet ∪ Software ∪ Mobile Phones ∪ Search

Engines

➢ Monopoly is the condition of every successful

business.
 Chapter 4: Ideology of
Competition

➢ It's not only the economists that are fooled by

competition, our society is driven by it!

➢ Bright students at a young age start competing for

admissions to elite institutions.

➢ Once they reach there, competition intensifies now

the target is to land that management consulting,
investment banking or blue-chip engineering
position.

➢ Once they land at those prestigious jobs,

competition reaches new highs. Vicious circle
continues until the intensity of competition reaches
to a level that sucks life out of them. That's how the
tale of fatalist badge-collecting conformist ends.

➢ Competition is WAR, and war is a costly business

both in terms of time and resources. War should be
avoided if it's not worth it.
 Chapter 5: Last Mover
Advantage

➢ Escaping competition is the first step to building a

monopoly, but it should be defensible.

➢ When evaluating fast-growing small companies ask

this question:

➢ Will this business still be around a decade from

now?
Characteristics of a
Monopoly
1. Proprietary Technology
➢ This should be a significant improvement on top of
what's available in the market today, a hard to
replicate improvement by competitors.

2. Network Effects
➢ As the number of users increase, it makes the
product as a whole more valuable.

➢ Social networks such as Facebook and LinkedIn

exploit this feature. As more people join the
network, more valuable it becomes and further
enhances the monopoly position.

➢ Ironically, in order to leverage network effects you

need to focus on a small target demographics " a
niche". Facebook started as a small experiment at
Harvard, it didn't go worldwide from day 1.
Characteristics of a
Monopoly
3. Economies of Scale:
➢ Firms get stronger as sales grow because fixed costs
can be spread over a larger quantity of sales.

➢ Software is great industry to exploit this

characteristic. The cost of serving the same
software to another customer is nearly zero.
➢ Service businesses are disadvantaged in this
dimension by their nature.
➢ Barber shops, yoga studios, consultancies can not
tap into economies of scale as easily. Serving more
customers means they need to open more shops in
different locations and employ more people, which
in return will increase fixed costs.
4. Branding
➢ Every company has a divine right to monopoly with
their branding. A strong branding is a powerful way
to obtain monopoly.
➢ Apple is the pioneering example of this dimension.
Their products, websites, shops are all designed
with the same minimalist, slick, premium qualities.
So how do you build a
monopoly?

➢ Startups should start with a small, well-defined

target demographics which is clustered in a small
geographical area.

➢ It is easier to start with a small target audience

rather than a large market. Large markets comes
with cut-throat competition, remember what we
said about competition in the last chapter?

➢ Amazon started by selling books, then moved into

DVDs and CDs before it became a store of
everything.

➢ Bezos timed move into adjacent and related

markets perfectly to build Amazon to be where it is
today.
 Chapter 6: You Are NOT a
Lottery Ticket

➢ There four different attitudes to future:

1. Definite optimism: Future can be predicted, and it will
be better.

2. Indefinite optimism: Future can NOT be predicted but

it will be better.

3. Definite pessimism: Future can be predicted, and it

will be worse.

4. Indefinite pessimism: Future can NOT be predicted,

and it will be worse.

➢ There is no such thing as luck, or in other words,

everyone is as lucky as everyone else! You get
luckier by working harder and smarter.

➢ Victory awaits him who has everything in order --

luck, people call it.
 You Are NOT a Lottery
Ticket
➢ Western world is in a state of indefinite optimism
right now, compared to definite optimism of the
Renaissance and Industrial Revolution periods.

➢ When people lack concrete plans, they start to build

a portfolio of various options. This is the dominating
viewpoint of Western world now.

➢ In middle school you are encouraged to take on

various "extra-curricular" activities. In high school,
most ambitious compete to appear omni-
competent, curating a diverse resume to prepare for
an "unknowable future".

➢ Come what may, she's ready -- for nothing in

particular.

➢ Instead of pursuing many-sided mediocrity and

calling it "well-roundedness", definite optimist
strives to be great at something substantive -- to be
a monopoly of one.
Chapter 7: Follow The
Money
➢ Pareto Principle. This is also known as power law,
80/20 rule.

➢ Italian economist Vilfredo Pareto showed that

20% of population owned 80% of the land in the
country. This is a well-known concept taught in
business management field, 80% of your sales
comes from only 20% of your clients.

➢ In order to maximize process efficiency, you

should focus on 20% of the opportunities which
would return 80% of the gains.

➢ If we apply the same rule to your distribution

channels, you don't need n many channels, you
need 1 or 2 that delivers the results.
 Follow The Money

➢ Whenever you plan to spend some time taking an

action, think of the power law and where your
action will fall on the power law distribution.

➢ Take fewer actions with bigger impact.

 Chapter 8: Secrets

➢ Secrets is the magic ingredient which makes a

great business.

➢ A secret is a truth which very few people agree

with you. In order to uncover secrets, you should
be looking for them. Many say there are no secrets
left in the world to discover, that's exactly why they
won't be finding any.

➢ If you happen to find a secret, you have two

options. You either keep it to yourself, or you share
it with others. One should note that, it's rarely a
good idea to tell everybody everything you know.

➢ Every great business is built around a secret that's

hidden from the outside. Inner workings of
Google's PageRank algorithm, Apple iPhone in
2007 etc...
 Chapter 9: Foundations

➢ Thiel says it's impossible to fix a start-up which is

broken at its foundation. Founding principles are
important, once they are set it is hard to amend
them later down the line. Since 1791, US
Constitution was only changed 17 times.

Co-founders
➢ Being co-founders is like marriage, it's an arduous
journey with many ups and downs. Much like that
you would not marry the first person you come
across at a slot machine in Vegas (slim chance you'll
hit the jackpot), you would not start a company with
a stranger.

➢ Complementary skillsets and personalities of

founders matter, but how well founders know each
other and how well they work together matter just
as much!
➢ Founders should share a pre-history before they start
a company together
 Conflicts at startups usually
stems from misalignment at 3
important dimensions, these are:

 1. Ownership who legally owns company's

equity. (founders, employees and investors)

 2. Possessionwho controls day to day

operations of the company. (founders and
employees)

 3. Control who formally govern company's

affairs. (board of directors and founders)

➢ Make sure each party involved with your

startup in one way or another is adequately
represented.
 Boardroom of a Startup
➢ Less is more.

➢ Smaller the board, easier it is for directors to

communicate, reach consensus and to exercise
oversight. However, the very effective nature of a
small board also means that board can oppose
management quite easily.

➢ When assembling a small board, you need to pick

your directors carefully. Each director matters, and
even one can give you a lot of headache and
jeopardize company's future.

➢ A board of 3 is ideal for private companies.

➢ If you want to rein freely in a dictatorial style, bloat

your board to a massive size which will give you full
autonomy. If you want to have an effective board,
keep it small!
 Cash is NOT King

➢ High CEO pay encourages CEO to behave like a

politician so she can hold on the entitlement
longer.

➢ Cash encourages short term thinking rather than

long term value creation. So cash incentives and
bonuses should be avoided where possible. Equity
is the best way to keep everyone aligned for long
term vision.

➢ CEO should also set an example either by taking

the LOWEST salary or taking the highest but still a
MODEST salary.
➢Thiel tells the striking story of Aaron Levie, CEO of
Box. 4 years after founding Box, he paid himself
lower than everyone else, lived in a one bedroom
apartment 2 blocks from the office. His
commitment was crystal clear to everyone in the
company. Good CEOs lead by example.
 Chapter 10: The
Mechanics Of Mafia

➢ Early PayPal team is known as the PayPal mafia

Valley because members of this early team went
on to create many succesful companies such as
YouTube, Palantir, Tesla, LinkedIn, Yelp and invested
in many others. What was so special about the
early PayPal team?

➢ Thiel advocates that a startup should make

recruiting fellow conspirators a core competency.
Hiring should never be outsourced

➢ Your hires should be like-minded people with

similar interests and a passion about the problem
domain you're working on.

➢ If a hire is forcing you to have a perk war, simply let

them go, they are not passionate enough.
 In order to foster a strong
culture, pay attention to these
4 dimensions.

 1. Imagery: Techies in SF fashion branded hoodies

of the companies they work for, it's a sign of
commitment.

 2. Slogans: Do you have catch-phrases, inside

jokes? These help foster stronger relations among
the team.

 3. Advocacy: What is the problem you're working

on? Is your company actively publicising its efforts?

 4. Obsession: Are team members obsessed about

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

➢ Distribution of a product is as important as the

product itself. Nerds and geeks are skeptical of
salespeople, because from the outset it might seem
superficial and irrational.

➢ Advertising exists, because it works. If you think

you're prone to advertising you're simply fooling
yourself. Advertising is not about making you buy a
product right at that moment, but creating
recurrent subtle impressions which will drive sales
in future.

➢ Technical people are used to producing and

evaluating transparent work. If an algorithm is
updated, results can be compared to previous run
see the impact of change. It doesn't matter how the
engineer who wrote the updated algorithm markets
it.
 If You Build It, Will They
Come?
➢ In engineering and science, the complexity of the
problems to tackle are clearly visible. On the other
hand, best type of sales is hidden. Salespeople on
endless calls, 2 hour lunches with prospective
clients might seem like they're not doing any real
work in the eyes of nerds. What nerds miss is that
it's hard work to make sales look easy!

➢ We only react abruptly to sales people who are

awkward or obvious, the activity of sales at its
peak seems invisible. If you think you've never met
such a person, you were probably blind to see that
you were being sold by a grandmaster.

➢ Best sales is hidden, because people don't like the

idea of being sold something. People want to make
their own decisions and exercise their right to
choose. Hence we rarely see any mentions of sales
in salespeople's title.
 Sell Advertisements

➢ We call people who sell advertisements - account

executives. We call people who sell customers -
business development managers. We call people
who sell companies - investment bankers. We call
people who sell themselves - politicians.

➢ It doesn't matter which profession you're in, even in

the realms of academia where its members might
like to think they are paragons of reason, study fields
are influenced and shaped by few names who are
better at getting their papers read and cited by more
scholars.

➢ For this reason, everyone should work on improving

their persuasion and negotiation skills.

➢ If you have invented something but you haven't

figured out a way to distribute it, you have a bad
business on your hands. You should treat distribution
as a fundamental part of your business.
 How to sell a product?

➢ You need to keep an eye on two metrics for assessing

effective distribution. These are Cost of Acquiring a
customer (CAC) and Customer Lifetime Value (LTV).

➢ CAC is the amount of money spent in order to get a

customer to buy or use your services.

➢ LTV is the total amount of money a customer will be

spending on your products or services. If you are
running a SaaS business, this might be annual
subscription fee multiplied by number of years
customer is likely to use your product.

➢ To have a profitable business, you'll need to satisfy

this equation: LTV > CAC

➢ Lifetime value extracted from a user should be

higher than the cost of acquiring them. Not exactly
rocket science, but it's all about finding the right
distribution channel which works for your business.
 Distribution Spectrum

➢ Depending on the value of each product/service you

sell, your distribution effort would fall somewhere
among the below spectrum.

 1 - Complex Sales
 Deal Size: $1m - $100m
 Target: Government, Public Corporations, any entity
with very deep pockets.

➢ If the deal size ranges between $1m to $100m, CEO

needs to be involved at every such deal. You need to
start at smaller deal sizes, slowly but methodically
grow the size of deals your company is doing.
 Distribution Spectrum

 2 - Personal Sales
 Deal Size: $10k - $100k
 Target: Consumer or Companies

➢ Such deals may involve mortgages, cars, machinery

etc... The trick here is to form an efficient sales
pipeline which is scalable! Organizing a small but
effective sales team which can push the product to
the masses is key.

 3 - Dead Zone Sales

 Deal Size: around $1k
 Target: SMEs

➢ This particular type of deals fall into an unfortunate

bracket, where the size of the deal doesn't justify
sending a salesperson to close it. On the other hand,
because target audience is likely to be small
businesses rather than individuals, conventional
forms of advertisement is hard to exploit as well.
 Distribution Spectrum

 4 - Small Sales
 Deal Size: around $100
 Target: Individuals or businesses. Traditional sales
and marketing channels are effective for this type of
deals.

➢ Advertiser needs to refrain from competing directly

with bigger brands, this can be achieved with a
contrarian brand persona.

 5 - Viral Sales
 Deal Size: around $1
 Target: Individuals, this can be achieved leveraging
network effects.

➢ Refer a friend, incentive mechanisms and

gamification.
 Power Law of Distribution

➢ You need to find that one channel which drives

majority of your sales. That's the power law of
distribution.

➢ Look around you, if you don't see any salespeople in

your business, that means YOU are the SALESPERSON.

Man and Machine

➢ Unlike his pal, Elon of PayPal, Thiel's outlook on AI is
optimistic. He believes man and machine have
complementary skillsets and will build the future by
working together.
➢ Consider the case of pattern recognition for instance, a
4 year old can identify a cat quite easily whereas a
machine would need gigabytes of training data to
come close.
➢ Another example is the fraud detection system Thiel
and the team built at PayPal. System used a
combination of anomaly detection statistics to flag
seemingly fraudulent transactions and brought those
particular cases to the attention of a human controller
to be investigated further.
Power Law of Distribution

➢ Decisions of human controllers were fed back into

the software making it a "human in the loop" AI
solution.

➢ Thiel's new company Palantir is bridging the gap

between two approaches to national security.
Historically, there is a stark contrast between CIA
and NSA. CIA adopts a human driven approach,
whereas NSA is machine driven. Palantir is
adopting a hybrid approach, which uses AI/ML
driven techniques to gather and analyse data, but
relies on human analysts to provide causal
explanations and unique insights.

➢ Thiel believes machines will empower humans

instead of replacing them. Worrying about AI is a
22nd Century problem, question we should focus
on right now is:

➢ “How can computers help humans solve hard

problems?”
 Chapter 13: Seeing
Green
Startups create a better Future

 Clean-tech bubble in early millennium failed to

deliver results

 Positively defined, a startup is the largest group of

people you can convince of a plan to build a
different future…

 Startups operate on the Principle that you need to

work with other people to get stuff done, but you
also need to stay small enough so that you actually
can.” – Peter Thiel

 Most important strength of a startup: the ability to

support a new way of thinking about the world
7 Important Question to
Answer Before
Launching a Startup!!!
Q1: Engineering Question

Do we have a technology that is 10x

better than the competition?

 Buyers pay as soon as an auction ended. Sellers

received their proceeds right away, and unlike with
a check, they knew the funds were good.” ‐ Peter
Thiel.

 Engineer a solution that is 10x better than the

competition.
 Q2: Timing Question

Is now the right time to start this

business?

 “Tesla CEO Elon Musk rightly saw a one‐time‐only

opportunity. In January 2010 Tesla secured a $465
million loan from the U.S. Department of

 Energy. A half‐billion‐dollar subsidy was

unthinkable in the mid‐2000s. It’s unthinkable
today. There was only one moment where that was
possible, and Tesla played it perfectly.” – Peter
Thiel

 A great startup is based on an idea that wasn’t

possible three years ago and won’t be possible (or
special) three years from now.
Q3: Monopoly Question

Are we starting with a big share of a small

market?

➢ “Tesla started with a tiny submarket that it could

dominate: the market for high‐end electric sports
cars. Since the first Roadster rolled off the
production line in 2008, Tesla’s sold only about
3,000 of them, but at $109,000 apiece that’s not
trivial. Starting small allowed Tesla to undertake
the necessary R&D to build the slightly less
expensive Model S, and now Tesla owns the luxury
electric sedan market, too.”‐ Peter Thiel

➢ Focus your initial efforts on a promising market

segment to prove your business model can
generate cashflow.
 Q4: People Question

Do we have the right team?

 “If you’re at Tesla, you’re choosing to be at the

equivalent of Special Forces. There’s the regular
army, and that’s fine, but if you are working at

 Tesla, you’re choosing to step up your game.” –

Elon Musk, Tesla CEO

 You need people on your team who are as

committed to the startup vision as you are. You
also need the right balance of engineering and
Sales talent to be successful.
 Q5: Distribution Question

Do we have a way to deliver our product?

 “Most companies underestimate distribution, but

Tesla took it so seriously that it decided to own the
entire distribution chain. Other car companies are
beholden to independent dealerships: Ford and
Hyundai make cars, but they rely on other people
to sell them. Tesla sells and services its vehicles in
its own stores. The up‐front costs of Tesla’s
approach are much higher than traditional
dealership distribution, but it affords control over
the customer experience, strengthens Tesla’s
brand, and saves the company money in the long
run.” – Peter Thiel

 The sales and distribution plan is as important as

the engineering and product development plan.
 Q6: Durability Question

Will our market position be defensible 10

years from now?

 “Tesla has a head start and it’s moving faster than

anyone else—and that combination means its lead
is set to widen in the years ahead.” – Peter Thiel

 Create a defensible market position for decades by

either creating:
 Strong brand (ex: Tesla and Apple’s strong
association with luxury goods),
 Proprietary technology (ex: Google’s search
algorithms),
 Large network (ex: Facebook’s user size ensures
people don’t leave the platform for a smaller and
less valuable network), or
 Economies of scale (ex: Amazon and Walmart sell a
massive number of items, which lowers their fixed
cost per item and allows them to outprice smaller
competitors).
 Q7: The Secret Question

Have you identified a unique opportunity

that others don't see?

 “Rich people especially wanted to appear

“green”...Tesla built a unique brand around the
secret that cleantech was even more of a social
phenomenon than an environmental imperative.”
– Peter Thiel

 Base your business on a behavior that people

don’t want to admit or are aware they’ll be doing
in the years to come.
 Chapter 14: The Founder's
Paradox

➢ Startup founders tend to have extreme character

qualities, this might be due to some form of law of
attraction. If you have extreme character qualities
you'll find yourself in the company of such people,
which will further enhance those extreme
qualities.

➢ Another interesting point Thiel makes about

startup founders is not only they have extreme
qualities; from the outset they might seem to
possess very "opposite" type of traits as well.

➢ Founder's startup might be "valued" multiples of

millions, but she might be living on a modest salary
within a one bedroom apartment. So she might
seem poor, but also rich depending on which angle
you look.
 The Founder's Paradox

➢ Founders might seem poor and rich, genius and

idiot or hero and villain at the same time. That's
the paradox of being a founder.

➢ So be tolerant of the extreme qualities of founders,

that's how they can lead companies beyond mere
incrementalism.

➢ Single biggest danger for a founder is to become so

certain of his own mythical qualities, he loses his
mind.
 Conclusion: Extinction or
Singularity

➢ According to Thiel, there are only 2 possible

options facing humanity.

➢ First option is that, we'll go into a horrible decline

with the extinction of humankind from the face of
earth. Global warming, populist politics, nuclear
war, global famine are among the contenders for
such a doomsday scenario.

➢ Second option is, the rate of advancement of

technology will keep accelerating leading to an
exponential take-off.

➢ My Personal opinion is I would put my faith on the

second option, that's the only outcome worth
working for.
Stay Tuned for More!!