Peter Thiel, Blake Masters
Zero to One
Today’s “best practices” lead to dead ends; the best paths are new and untried.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.
The most contrarian thing of all is not to oppose the crowd but to think for yourself.
by “monopoly,” we mean the kind of company that’s so good at what it does that no other firm can offer a close substitute.
Framing itself as just another tech company allows Google to escape all sorts of unwanted attention.
Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets: British food ∩ restaurant ∩ Palo Alto
Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets: search engine ∪ mobile phones ∪ wearable computers ∪ self-driving cars
We are not the monopoly that the government is looking for.
In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
In a static world, a monopolist is just a rent collector.
But the world we live in is dynamic: it’s possible to invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.
Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
“So, Peter, aren’t you glad you didn’t get that clerkship?” With the benefit of hindsight, we both knew that winning that ultimate competition would have changed my life for the worse.
All Rhodes Scholars had a great future in their past.
negotiated a 50-50 merger. De-escalating the rivalry post-merger wasn’t easy, but as far as problems go, it was a good one to have. As a unified team, we were able to ride out the dot-com crash and then build a successful business.
Simply stated, the value of a business today is the sum of all the money it will make in the future.
will this business still be around a decade from now?
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate. Google’s search algorithms, for example, return results better than anyone else
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.
PayPal, for instance, made buying and selling on eBay at least 10 times better.
Amazon made its first 10x improvement in a particularly visible way: they offered at least 10 times as many books as any other bookstore.
You can also make a 10x improvement through superior integrated design. Before 2010, tablet computing was so poor that for all practical purposes the market didn’t even exist.
Network effects make a product more useful as more people use it. For example, if all your friends are on Facebook, it makes sense for you to join Facebook, too.
Network effects can be powerful, but you’ll never reap them unless your product is valuable to its very first users when the network is necessarily small.
Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students—Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract all people of Earth.
A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales.
A good startup should have the potential for great scale built into its first design.
A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
Apple has a complex suite of proprietary technologies, both in hardware (like superior touchscreen materials) and software (like touchscreen interfaces purpose-designed for specific materials). It manufactures products at a scale large enough to dominate pricing for the materials it buys. And it enjoys strong network effects from its content ecosystem: thousands of developers write software for Apple devices because that’s where hundreds of millions of users are, and those users stay on the platform because
These other monopolistic advantages are less obvious than Apple’s sparkling brand, but they are the fundamentals that let the branding effectively reinforce Apple’s monopoly.
Therefore, every startup should start with a very small market
The reason is simple: it’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.
With that lesson learned, we set our sights on eBay auctions, where we found our first success. In late 1999, eBay had a few thousand high-volume “PowerSellers,” and after only three months of dedicated effort, we were serving 25% of them.
Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets. Amazon shows how it can be done. Jeff Bezos’s founding vision was to dominate all of online retail, but he very deliberately started with books.
Amazon then had two options: expand the number of people who read books, or expand to adjacent markets. They chose the latter,
Sequencing markets correctly is underrated, and it takes discipline to expand gradually. The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.
Note: Interesting for 4.0 now. How do we sequence out mkts? What are our non geog mkts?
But if you truly want to make something new, the act of creation is far more important than the old industries that might not like what you create.
It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits.
Note: Jobs to tablets, phones
After a brief pessimistic phase in the 1970s, indefinite optimism has dominated American thinking ever since 1982, when a long bull market began and finance eclipsed engineering as the way to approach the future. To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely.
Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.
Would-be entrepreneurs are told that nothing can be known in advance: we’re supposed to listen to what customers say they want, make nothing more than a “minimum viable product,” and iterate our way to success.
But leanness is a methodology, not a goal.
Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes.
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.
But this “spray and pray” approach usually produces an entire portfolio of flops, with no hits at all. This is because 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.
Note: Oh shit. We are running a vc form. We have to think about power laws not diversification
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.
However, every single company in a good venture portfolio must have the potential to succeed at vast scale
Note: What if we only bet on our amazing amazing ones. How does UC fit in here?
Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets.
After 10 years, however, the portfolio won’t be divided between winners and losers; it will be split between one dominant investment and everything else.
Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP.
investors who understand the power law make as few investments as possible.
Our schools teach the opposite: institutionalized education traffics in a kind of homogenized, generic knowledge. Everybody who passes through the American school system learns not to think in power law terms. Every high school course period lasts 45 minutes whatever the subject. Every student proceeds at a similar pace.
That is completely false. It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
The power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million
Remember our contrarian question: what important truth do very few people agree with you on?
we have given up our sense of wonder at secrets left to be discovered.