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Zero to One

#### Introduction

## What’s in it for me? Learn from one of the world’s most prominent venture capitalists.

Have you ever wondered just what makes a startup successful? Well, there are a few answers to that question, but I'll let you in on one of the biggest secrets to success right off the bat for this Blink. Your company has to achieve a monopoly. And yes, I realize monopolies have a bad reputation, but believe it or not, they can actually be good for innovation.
Because to reach the state of being a monopolist, you have to create something utterly new, something that can't be copied. You have to go from zero to one. This is the core of Peter Thiel's philosophy. As you might know, Thiel is one of the world's foremost venture capitalists. He co-founded PayPal and was the first outsider to invest in Facebook. And in this Blink, I'll break down the key messages of his book Zero to One, which is based on the notes for a course that Thiel himself taught at Stanford University.
In the first three chapters, I'll explain the three things you should stop doing. Then, over the course of the following five chapters, I'll show you the five things you should be doing if you wish to be a successful monopolist. But first, let's start at the mysterious place where every founder should spend at least some of their time. It's called the future.

#### Chapter 1 of 10

## Stop imitating, and start thinking outside established conventions.

Try to imagine the world in the year 2100. What do you see? Well, the future you imagine is probably different from today's world in many ways. After all, thinking about the future means thinking about some sort of progress.
We've all internalized this idea because we share this experience that the world we lived in as children was somehow different than it was today. And in many ways, that's true, at least when it comes to technological progress. So let's get back to the exercise. If you think about the year 2100, what comes to your mind? Maybe you imagine super-fast planes, silent and sleek self-driving cars, computer monitors that are so thin you can barely see them from the side. My point is, you probably imagine a future that's full of improved versions of the products and services that already exist today.
This is known as horizontal progress. It's based on expanding existing ideas and innovations. Here, globalization is a common driver because it helps spread existing ideas to more people. But if you want to be truly innovative, making horizontal progress is not enough. Instead, you should aim for vertical progress. And that means creating an utterly new technology or method.
For example, the invention of the smartphone was the result of vertical progress. We went from a world without smartphones to a world with smartphones. Distributing them to new markets and developing countries, on the other hand, was horizontal progress. Companies simply expanded on what was already there. And this is where Thiel's idea of going from zero to one comes in. Think of a regular graph.
The x-axis represents horizontal progress, improving and copying, going from one to two to three to four and so on. Or in mathematical terms, going from one to n. The y-axis represents vertical progress, going from nothing to something. Or from zero to one.

#### Chapter 2 of 10

## Stop relying on good luck – success is the product of focus and determination.

Vertical progress is more difficult to achieve than horizontal progress because, as I mentioned, you have to think of something that doesn't exist yet and that will meet a future need. In this way, as a startup founder, you have to be able to predict the future. And you can only do that if you're able to view the present critically. Peter Thiel believes that this is such a crucial ability that in job interviews, he actually asks candidates, what important truth do very few people agree with you on?
And why does he ask this? Because only a person who can think outside established conventions can see and change the future. Okay, imagine you have completed your thorough analysis of the potential the future holds for you. What's next? The next step is focus. You see, today many people think indefinitely.
That is, they try to prepare themselves for all possible future events. This approach is pretty much useless because the future holds far too many unknowns and variables. A more effective approach is making an effort to achieve the one future that's best for you. For example, many school children take on a myriad of extracurricular activities in hopes of getting into a top-notch university. But wouldn't it make more sense to just focus on mastering one subject so that they could be the best in that one thing? It's crucial to keep this in mind when founding a startup.
Startups only have one best future, and getting there demands a concerted effort. The road to success is paved with many conscious decisions. You have to find the one niche, create the one visionary product, and wait for the one moment when the conditions are just right. And when all of those align, then it's time to strike.

#### Chapter 3 of 10

## Stop making products that can be copied and create a monopoly instead.

Many people believe that competition is the ideal economic stimulus. And this is simply because it encourages companies to improve on each other's products. That however, is not true. It's actually monopolies that drive innovation.
Let me explain. When people hear the word monopoly, they tend to think of large, evil companies unfairly squeezing out competition. But if you have a monopoly, it doesn't necessarily mean the competition is being treated unfairly. It can also show that you're doing something very well, so well in fact that your competition just isn't able to survive. If that's the case, it's probably due to the fact that you've created something new that no other company can copy. Think of Google.
The company clearly has a monopoly over the search term industry, having faced virtually no competition whatsoever in the 21st century. Long gone are the times when Yahoo or AltaVista played a significant role in the realm of web search. Now ask yourself, is this an unfair situation? Well it might seem unfair to other companies who would like to compete in this very lucrative market, but that seems to just be a minor problem for very specific companies. On the other hand, the fact that Google was able to rise up and strive to be a monopolist had clear benefits. Basically it's good for everyone who enjoys Google's powerful search engine.
And that's a lot of people. And the prospect of achieving a monopoly doesn't kill long-term competition either. For example, if a company wants to compete in the search engine market today, it can do that starting tomorrow. But it needs to invent a search engine that's not just a Google rip-off. This new type of engine has to be different and way better than what Google has to offer. And if it achieves this, it'll be the consumers who benefit.
And monopolistic structures have another positive effect. They prevent the rise of industries where there's so much fierce competition that everyone loses. Take the highly competitive airline industry. In 2012 there were so many airlines that fought for passengers' attention and money that everyone had to lower their prices. And at the end of the day, a single passenger trip generated a measly 37 cents of profit. 37 cents for a whole flight.
Compare that to Google, which keeps over a quarter of its revenues as profits. And these are only the positive effects of monopolies on society. But of course, they're beneficial for companies too. And here are four reasons why. First, monopolists have a technological advantage. Their proprietary technology works much better than anyone else's.
Usually, at least 10 times better. Google's search algorithms, for example, are much faster and have better predictive power than anyone else's, which makes it very difficult for a competitor to replace them. Second, monopolists enjoy network effects. The more people are using their product, the more useful it is. Consider Facebook. It wouldn't be very useful if none of your friends or families were signed up.
What makes it valuable to you is the fact that many of the people in your network can be found there. This means that newcomers face an uphill battle when trying to lure customers away from monopolies. Third, monopolies benefit from economies of scale. And that means cost savings gained by producing something on a large scale instead of a small one. Say you own a bakery and have fixed costs like rent, heating, and electricity, totaling $1,000. In this bakery, you can produce between 1 and 10,000 buns a month, all while the fixed costs remain the same.
So the more buns you sell, the more you can spread out those fixed costs, meaning that the effective costs incurred per bun is less. Your products, therefore, can be cheaper. And finally, the fourth reason is that monopolies have strong bonds that can't be replicated. Apple, for example, is the strongest tech brand that exists today.
While many other companies have tried to emulate its sleekly designed products and stores, they just haven't seen the same level of success because they haven't been able to build as much buzz around their brand. So if you would like to analyze a business to try and find out if it has a chance to become a monopoly, look at these four criteria first. Technological advantage, network effects, economies of scale, and strong brands. Okay, so that was a lot of theory.

#### Chapter 4 of 10

## Here’s what you need to succeed.

Now let's take a deep breath and put the theory to work. In the next five chapters, I'll give you five pieces of advice on how to turn your startup into a successful monopoly. Here's a sneak peek. Number one, you need a vision.
Two, you need a secret. Three, you need persistence. Four, you need a strong culture. And finally, five, you need an outstanding sales strategy. Alright, here we go.

#### Chapter 5 of 10

## You need a vision.

What do you think makes a typical startup founder? Sure, many founders are adventurous, they're passionate, but there's something else. What we're looking for here is the special ingredient, the secret sauce. In fact, founders, especially those of successful companies, are, well, a bit strange.
Some of them have been a bit off since birth. Others have become that way to emulate past great founders. But many successful founders are unusual. Consider PayPal's founding team. Almost every member was a bit of an oddball. In fact, as teenagers, four of them even had the unusual hobby of building bombs.
Now I'm not here to tell you you should be out there building bombs, but I'd like to make more of a general point. You need originality in your founding team. That's important because founders do far more than just starting a company and hiring people. They provide a vision. But a vision is something that you can't just come up with by following a step-by-step guide from a business handbook. It has to be connected to unique personalities who bring their unique ideas to life.
Think about Apple. In its early days in the 1970s, Apple used to be a small but playful and highly innovative company. But as its products gained popularity, people at Apple felt the need to hire more, well, grown-ups. More business people. More managers. You get the idea.
Until at some point in 1985, Apple actually kicked out its ingenious founder, Steve Jobs. What was left was a company that had refined management strategies, but lacked a soul. So in 1997, when Apple was just a few months away from bankruptcy, Steve Jobs returned. Driven by his vision of personal computing, he made a couple of radical decisions. In 2001, he introduced the iPod, which analysts brushed off as nothing but a cool gadget for Mac users. Today, we know that the iPod was immensely successful.
And so were the iPhone and the iPad. By 2010, Apple offered a family of post-PC devices, distinguished by their sleek looks and exclusive features. Jobs had made Apple the most valuable company in the world by following a carefully thought-out plan based on his vision. And as this success story shows, even a strong company, if it wants to perform at the highest level, needs the originality and vision of its founder.

#### Chapter 6 of 10

## You need a secret.

Let's be honest. If you search for ways to make vertical progress, it's easy to become discouraged. We live in a high-tech world that's already filled with so many life-changing inventions. Sometimes it feels like there just aren't any new ideas to be had.
But that's not true. In fact, the world still has plenty of secrets. That is, things that are important, but which most people don't know about. Or if they knew about them, they wouldn't be interested in them. Sure, that makes these abstract secrets hard to discover, because you're on your own and you have to defeat a lot of skepticism. But it's not impossible.
For tech companies, the best secret is to have better technology than their competitors, because it can make their position as market leaders unassailable. You need to find and chase these kinds of secrets. Otherwise, you'll just be another provider of horizontal progress, offering conventional products in a competitive market. Now if this all sounds a bit vague, that's because I can't really give you concrete examples for this one. I mean, if I could name the secrets that lie hidden in the future, I'd already be rich and famous. So, I guess it's your job to find the secrets of the future.
But to help you on this path, I can give you one example from the past. In the 1990s, Hewlett Packard had great technology. The company used it to bring out one innovative product after the other. An affordable color printer, for example, and an all-in-one printer, copier, and fax machine. A truly wild idea at the time. But at the end of the 1990s, a conflict arose within the company's board.
One group, led by engineer Tom Perkins, believed that the board should double down its efforts on the development of new technologies. But at the end of the day, Perkins' rival, chairwoman Patricia Dunn, had her say. Dunn argued that technical questions were outside the board's scope of responsibility. So HP just stopped chasing secrets and inventing groundbreaking products through the 2000s. And consequently, in doing so, it lost half its market value. PayPal was founded in 1998 by Max Levchin, Luke Nosik, and the author, Peter Thiel.

#### Chapter 7 of 10

## You need persistence.

In the early days, it didn't make any profits. In fact, when Thiel calculated the value of the company in 2001, he found that most of it came from profits that didn't even exist yet. Profits that weren't expected to come in for another 10 years. But as we now know, the company did eventually become very profitable.
And the key message here is, it can take years for a startup to become profitable. But even if the company doesn't initially make profits, it can still have value. Because value is determined by the profits it will make over its entire lifespan. If you founded a startup, you can't expect to be the top dog in your business from the get-go. You need to be prepared to stick around for the long run. And that's why it makes sense to start small and then expand bit by bit.
First, understand that you don't need to be the very best in every business. Just your business. So it's important to define your market as narrowly and specifically as possible. That will make it easier for you to become its dominant player. Because once you've obtained a monopoly in this niche, you can then move on to the next, broader market. Think of Amazon.
From the very beginning, its founder Jeff Bezos had the ultimate goal of becoming the world's greatest online retailer. But he started much more narrowly, selling nothing but books. Only after Amazon conquered the book market did it then expand to other categories like CDs and videos. And from there to every other product. Contrary to what many think, Amazon's success hardly happened overnight.

#### Chapter 8 of 10

## You need a strong culture.

When you start out on the long road of building up a business, the first days are crucial. You have to create a strong culture where people support and believe in each other. For example, at PayPal, the team was so close that many of them even went on to start new companies together later. Now typically, startups are so small that every single person on that team plays an important role.
That's why, before making an investment in a company, it's helpful to not only analyze the skills and vision of the people involved, but also their personal connections. Peter Thiel has seen first-hand what weak personal ties can do for a team. Before co-founding PayPal with Luke Nosek, the author had invested in a company that Nosek had started with someone he barely knew. Eventually, their personal differences took the whole venture down, along with the author's investment. So think twice about the people you're starting the company with. Moreover, make sure that the different interests of the various company owners are balanced.
Typically, the founders wish to develop their products somewhat patiently, whereas the board of directors wants to bring in profits as soon as possible. While these interests aren't necessarily mutually exclusive, they can sometimes cause conflict, so it's crucial to define a way of resolving such conflicts early on. Of course, the need to create a strong culture doesn't stop at the C-level. Everyone in the company works more effectively when there's mutual understanding and trust. But remember, company culture doesn't consist merely in the perks you offer to your employees, like a pool table and a soda machine. It's all about creating strong relationships, and that takes time and effort.

#### Chapter 9 of 10

## You need an outstanding sales strategy.

Innovative products are worthless unless they're sold. That's obvious, I know. But if you think about typical founders, many of them are enthusiastic about technology, which is a good thing, but also has a downside. Tech enthusiasts would often prefer to work on product innovation all the time, and they don't want to spend their time on sales, but they really should.
So what does it take to improve your sales? First, to sell your product effectively, you need good distribution. This not only includes your sales channels, but also the effort and organization it takes to sell your products. To leverage your distribution, you always need to consider the potential of each client before deciding how much effort you're willing to put into making the sale. For example, the author co-founded the data analytics company Palantir, where a single closed sale brings in several million dollars. Here the CEO has to personally do the selling, because clients spending such sums expect personal involvement from the seller's executives.
In another business, where single sales deals only bring in a few hundred thousand dollars apiece, it wouldn't be an efficient use of time for a highly paid CEO. However, the CEO would still need a solid sales team to represent the company. Another way to enhance your distribution is to use sales strategies. To be clear, I'm not asking you to use blunt manipulation techniques. They probably won't work anyway. What I would like you to do is think about selling more in terms of how can I build strong relationships with my clients?
And how can I reach my customers? For example, some products require viral marketing, where users generate more users through word-of-mouth effects, while others can be sold best just using traditional advertising. But before you pour all of your budget into a specific marketing initiative, start small. Try different approaches with a pool of reference customers. If an approach has proven to work, you can easily expand it into larger customer groups.

#### Chapter 10 of 10

## Before you start, read this checklist.

Here's a story from Silicon Valley. Between 2005 and 2009, an investment bubble was at its height. The underlying industry was clean technology, or cleantech. Products and services that promote things like the sustainable use of natural resources and the use of renewable energy sources.
Sounds like a great opportunity, right? Well, thousands of companies did start in this very industry, financed by over $50 billion in investments. But since then, many companies have gone under, and it goes without saying, they took their investors' money with them. So why did they fail? Because their executives were starry-eyed. They simply didn't analyze the market opportunity well enough.
Here are a few examples. 1. Cleantech companies didn't understand that to prevail over established energy companies, they needed technology 10 times better than theirs, not just slightly better. 2. Some cleantech companies believed that the industry was on the cusp of a period of rapid, exponential advances in, for example, solar panel technology, and that this would allow them to flourish. But in fact, cleantech has instead advanced slowly and linearly.
3. Cleantech companies were part of the trillion-dollar energy industry, which meant dog-eat-dog competition for even the smallest shares of the market. A smaller market, where you have a good chance of building a monopoly fast, is a much better bet. 4. Cleantech companies were often run by non-technical executives who had no idea how to build great products. 5.
Many cleantech companies, like electric vehicle startup BetterPlace, believed their technology was so good that they didn't need proper distribution channels. After spending $800 million of investors' money and selling just a thousand cars, it ended up filing for bankruptcy. And 6. Many solar technology companies were surprised when Chinese companies began churning out similar products at a much lower cost. This should have been foreseeable from the outset. So if you would like to found your own startup, you have to avoid making mistakes like these.
And that's why I'd like to end this blink with a checklist. Here are 7 questions to ensure you're set for success. The engineering question. Can you create a true technological breakthrough? The timing question. Is this the right time to start your business?
The monopoly question. Will you start off with a large share of a small market? The people question. Can your team pursue this opportunity? The distribution question. How will you deliver your product to customers?
The durability question. Can you still defend your market position in 10 or even 20 years? The secret question. Do you see a unique opportunity that others have missed?

#### Conclusion

## Final summary

Alright, let me briefly sum up what you've learned in this blink. If you would like to become a successful entrepreneur, one strategy you can pursue is trying to build a business that obtains a monopoly. To do that, you have to form a vision first. Your goal is to go from 0 to 1, meaning that you create a whole new category instead of just mimicking what everyone else does.
And when you've found the unusual idea to base your startup on, don't go too broad too quickly. Find a small niche where you can do something way better than any of your competitors. Once you've established a monopoly there, you can expand to other markets later. But remember, you have to be ready to challenge established conventions. Because after all, success is for the bold, and not for the copycats. Thanks so much for listening.
And if you can, please leave us a rating. You can find the rated button on your screen right now. We always appreciate your feedback. See you in the next blink.
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Zero to One
Peter Thiel with Blake Masters
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