Peter Thiel, Blake Masters

Zero to One

Notes on Startups, or How to Build the Future



  • Every business is a single opportunity, there is no “magic formula”.
  • What valuable company is nobody building?
  • What important truth do very few people agree with you on?
  • Globalization must be accompanied by technological progress. Otherwise, the phase of globalization is not sustainable.
  • Monopolies create wealth, drive progress and bring the world forward. Competitive companies compete the profit away and struggle for survival.
  • Monopolies claim themselves smaller than they really are. Competing companies claim they are bigger than they really are.
  • When building a startup create and dominate a niche market first and then gradually expand into related and slightly broader markets, like Google, Facebook, Amazon, eBay, PayPal, and Tesla did.
  • Believe in definite optimism: have a vision, make a plan and then execute it. Make the world a better place with broad ideas, planning, and hard work.
  • Matthew-effect: Everything you do will compound in the end.
  • Hire similar people, build personal connections and belonging. Make stable structures of people by aligning possession, ownership, and control. Eliminate competition between people.
  • Go viral! It is the most effective way of growing.
  • Humans and computers are fundamentally different. They are complementary to each other, not rivals.
  • Ask yourself the 7 startup questions about engineering, timing, monopoly, people, distribution, durability, and secret.
  • Stanford University professor
  • Founder and CEO of PayPal (together with Elon Musk)


  • “Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page and Sergey Bran won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you’re copying these guys you aren’t learning from them.”
  • “The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative.”
  • “Whatever is good enough to receive applause from all audiences can only be conventional.”
  • “You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won’t take you from 0 to 1.”
  • “Successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.”
(Elon Musk explains “first-principle thinking”)
  • “What important truth do very few people agree with you on?” This is a very hard question to answer because:
    • the knowledge thaught in school is agreed upon
    • it is unpopular
    • good answer: most people believe in X, but the truth is the opposite of X
    • this question is about the future
  • “What valuable company is nobody building?”
    • “Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.”


Horizontal or extensive progress:
  • copying things that work
  • going from 1 to “n”
  • globalization —> taking things that work somewhere and making them work everywhere
  • China (example) copying everything that work in the developing world —> entire cities
Vertical or intensive progress:
  • doing new things
  • going from 0 to one
  • technology means: any new and better way to doing things
“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.”
  • The main activity of a business is value creation.“BUT creating value is not enough. You also need to capture some of the value you create.”
    • There is a difference between revenue and profit
    • Example: Google stands alone, US airlines compete with each other. In 2012 the profit margin of US airlanes: 0,21%  vs Google: 21% profit margin. The airlines competing for all of their profit away while Google capturing a huge percentage of it.
  • The ideal state of the economy: achieve equilibrium when producers producer supply meets consumer demand.
  • Every firm is competitive, the market is undifferentiated. They sell whatever price the market determines.
  • IF: there is a profit: new firms enter the market, increase supply, drive prices down and eliminate the profit that attracted them in the first place.
  • Too many firms enter the market, some will fall, supply decreases, and prices fall back to a sustainable level.
  • Under perfect competition in the long run no company makes an economic profit.
Capitalism and competition are opposites:
  • Capitalism is premised on the accumulation of capital. BUT with competition, all the profit has competed away.
  • Competition is an ideology —> “the more we compete the less we actually gain”
  • War metaphors are deeply embedded in business language: “headhunters”, “sales force”, “captive market”, “make a killing”.
Why do people compete with each other?
Because they are different:
  • Marx: people fight because they’re different: the proletarian fight the bourgeoisie —> they have opposite goals and views of the world, one group wants to sustain the equilibrium, the other wants to change the world. The greater the difference between two different groups the greater the conflict.
Because they are similar:
  • Shakespeare: People fight despite being very similar. The opening line from Romeo and Juliet: “Two households, both alike in dignity.”
  • Business analogy: Capulet -> Microsoft, Montegue -> Google. The conflict was entirely evitable, they became obsessed with the fight itself.
  • Then Apple came along and took their dominance. January 2014 -> Apple market cap.: 500 billion Google and Microsoft combined: 476 billion
  • This is exactly what’s happening inside an organization when people are not cooperating, but competing for resources or career advancement.
How to avoid competition inside the company?
  • “Most fights inside a company happen when colleagues compete for the same responsibilities.”
  • “The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing.”
  • “Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism.”

Further material:

Horizontal Hostility

  • Adam Grant, (professor at the Wharton School of the University of Pennsylvania specializing in organizational psychology) author of the book: Originals explains the idea of Horizontal Hostility.
  • One o the greatest expert on the topic is Harvard professor Judith White.
  • Sigmund Freud: “It is precisely the minor differences in people who are otherwise alike that formed the basis of feelings of strangeness and hostility between them.”
  • Malcolm Gladwell, author of the book David and Goliath tells a story of the escalation of the fight between Irish catholic and protestant people.

Escalation of conflicts

A short history
  • 1815 – 1914 —> period of rapid technological development and globalization at the same time
  • 1914 – 1971 —> rapid technological development, but not much globalization
  • 1971 – until now —> rapid globalization with limited technological development (except the technology sector)
  • Now: developed and developing nations suggest: the developed already achieved the achievable
  • Future: without technological change, if China doubles its energy production over the next 2 decades it’ll also double its air pollution
  • Future: if everyone from Indian households wants to live the way Americans do, using only today’s tools the result would be environmentally catastrophic
  • Future: spreading old ways to create wealth around the world result in devastation
  • Future: with scares resources globalization without technology is unsustainable
  • sept. 1998 —> march 2000 — 18 months

Lessons learned:

  • Make small, incremental steps – the only safe way forward
  • Stay lean and flexible – you should not know what your business will do. Planning is arrogant and inflexible.
  • Improve on the competition. Don’t try to create a new market prematurely. The only way to create a REAL BUSINESS is to start with an ALREADY EXISTING CUSTOMER (concierge).
  • Focus on product, not sales. If your product needs advertising and sales people to sell it it is not good enough. The only sustainable growth is VIRAL GROWTH.
  • Investors went back “from clicks to bricks” —> the underlying mechanism was the same.
  • Bubbles are caused by distortions in beliefs. For example accepting “page views as a more authoritative, forward-looking financial metric than something as pedestrian as profit.”
  • “But the distortions caused by bubbles don’t disappear when they pop.”
“What valuable company is nobody building?”
  • The opposite of perfect competition.
  • A monopoly owns it’s market so, it can set  it’s own prices.
  • Because companies that are monopolies can focus on maximizing profits while simultaneously creating products of superior quality.
Types of monopolies:
  1. Eliminates its rivals (legally or unethically)
  2. Secures a license from the state (legally or unethically)
  3. Innovates its way to the top, becomes 10x better than its competitors. (Google in early 2000)
  • Monopolies are powerful engines to make society better:
    • Monopolies have enough capital to make huge research projects possible — therefore they can drive progress.
    • Profits enable them to make long-term plans and not just play for short-term gain.
    • New products that benefit everybody — vs competition: no profits for anybody, no meaningful differentiation, and struggle for survival.
    • “If you want to create and capture lasting value don’t build an undifferentiated commodity business.”
  • Examples:
    • Google on search engines
    • IBM hardware monopoly in the 60s and 70s
    • Microsoft – software monopoly
    • AT&T

Competitive companies vs monopoly are farming the communication very differently:

  • Want to look smaller, they definitely don’t want to admit they are monopolies.
  • Framing the market as a union of several large market —> union-story
  • Google message: “Since consumer tech is a $964 billion market globally, Google owns less than 0.24% of it”
  • Google chairman, Eric Smitz 2011 congressional hearing —> “We face an extremely competitive landscape in which consumers have a multitude of options to access information.” —> In other words: Google is a small fish in a big pool.
  • Want to look bigger, they exaggerate their position.
  • Defining themselves as an intersection of various smaller markets.


The niche-strategy
  • Network effect businesses must start with a special small market and have to be dominant in that market.
  • The initial markets are often so small that they often don’t appear to be business opportunities.
  • It is much easier to reach a new thousand customer who really needs the product than to compete for the attention of millions.
  • The perfect target market for a startup is a small group of people concentrated together and served by few or no competitors.
  • Any big market is a bad choice.
  • Red flag: when entrepreneurs talk about getting 1% of a 100 billion dollar market. There is NO STARTING POINT in this market. In other words no niche.
  • Sell to intense interest groups first, then expand slowly. Create and dominate a niche market first and then gradually expand into related and slightly broader markets.


  • Amazon strategy: books —> targeted valuable customers —> expanded to broader markets.
  • Apple: just a few key products and then expanding the product line to a wide range of devices.
  • Tesla: just one model first: luxury electric cars and then expanding the product line, making it affordable to a large number of customers.
  • Facebook started with just Harvard students —> the first product was designed to get all his classmates signed up.
  • Google: queries about Stanford University.
  • PayPal: just eBay transactions between sellers and buyers.
You have to distinguish 3 different kinds of alignments in order to create a stable structure of people.
  1. OWNERSHIP: Who legally owns the company’s equity? (founders, employees, investors)
  2. POSSESSION: Who actually runs the company on a day-to-day basis? (managers and executives)
  3. CONTROL: Who formally governs the company’s affairs? (board of directors)
  • Recruiting: is a core competency, it should be never outsourced.
  • Have a compelling mission that will motivate people to work with you. You cannot offer benefits that big companies can, BUT you can offer a mission.
  • Create the right match between people and the work. Are they a good fit for the job?
  • Eliminate competition inside the company. Make people responsible just for one thing. So they don’t have to compete for responsibility.
    • helps to sustain long-term relationships
    • internal peace is what enables a startup to survive
    • internal conflicts: like an auto-immune disease: the real cause remains hidden from outside
    • strong feelings of belonging: you can make better teams (more on this: Daniel Coyle: Culture Code)
  • Max Levshin, co-founder of PayPal: “Startups should make their early staff as personally similar as possible.” (more on this: sociologists: James Baron and Michael Hannan research about organizational blueprints).
Seven questions that every business must answer
1. The Engineering Question
  • Can you create breakthrough technology instead of incremental improvements?
2. The Timing Question
  • Is now the right time to start your particular business?
3. The Monopoly Question
  • Are you starting with a big share of a small market?
4. The People Question
  • Do you have the right team?
5. The Distribution Question
  • Do you have a way to not just create but deliver your product?
6. The Durability Question
  • Will your market position be defensible 10 and 20 years into the future?
7. The Secret Question
  • Have you identified a unique opportunity that others don’t see?
Not having a bold vision can lead only to a local maximum instead of the global maximum.
  • “You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won’t take you from 0 to 1.”
  • Founders sell when they have no more concrete vision for the company. When they have a much bigger plan they don’t sell.
    • Yahoo offered to buy Facebook for a billion dollars (July 2006) they didn’t sell it because the founders saw the vision.
    • Steve Jobs carefully executed his multi-year plan. When the i-pod released (Oct. 2001) industry analysts couldn’t see much, just a nice feature that couldn’t make much difference to the world. But Jobs saw generations of portable devices.
“A product is viral if it’s core functionality encourages users to invite their friends to become users too.”


“Optimists welcome the future, pessimists fear it.”
  • They know that the future will be worst, but they don’t know how exactly.
  • Every culture declines from a golden age.
  • Everyone way pessimism: ancients — Europe since late 1970.
  • It dominates a huge part of the world
  • REACT to events that happen and hope that things don’t get worst.
  • The future can be known, it will definitely will be worst that the present.
  • They make actions to prevent it or at least to survive the disaster.
  • China – most definite pessimism – from Chinese view point: economic growth cannot grown forever. As more and more people want to live a live like the american middle class the economy will be unsustainable. There are simply not enough resources on the world.
    • China’s strategy: copy what is already worked in the west.
  • The future will be better if we work to make it better.
  • We can make plans and actions to make the world a better place. We don’t leave it to chance.
  • 17th century until the 1960s: industrial revolution, technological revolution, information revolution. Many people were making definite plans and executing it with hard work.
    • Steam navigation, engineering, medicine, technology, etc…
  • Since 1982 – when the long bull market began – until now.
  • The future will be better, but we don’t know how exactly (babyboomer generation: -used to effortless progress, just invest in the stock market and everything will go up anyway. There is little reason to plan – since tracked carriers worked for them they can’t imagine that they won’t work for they kids too)
  • We expect to profit from the future, but we see no reason to design it concretely.
  • Not INVENTING things, but REARANGING resources
    • Like bankers: constantly rearranging capital while hoping to gain
    • Indefinite finance: no idea how to create wealth —>, therefore, diversification becomes extremely important in fact the only strategy.
    • Definite people focus, indefinite people diversify.
    • Indefinite politics —> “we’re more fascinated in a statistical prediction of what the county will be thinking in a few weeks time, than by visionary predictions of what the county will look like ten or twenty years from now”
    • In the 19th century, the government used to coordinate complex solutions for the problems like nuclear weaponry, landing on the Moon. Today’s governments are not focusing on big and global problems, just provide insurance.
The first 3 views can work, the last one can’t.
  • definite optimism work when you build the future you envision.
  • definite pessimism: by building what can be copied.
  • indefinite pessimism, woks, because it is self-fulfilling.
  • BUT indefinite pessimism doesn’t work.
  • We were thought to take just one very small step at a time day by day, grade by grade.
  • That’s why academics chase large numbers of trivial publications, instead of new frontiers.
  • People are scared of secrets, they’re scared of being wrong.
  • A secret isn’t mainstream: if there is a radically new idea it cannot be mainstream by definition.
  • If the goal is to never make a mistake in life, so you shouldn’t look for secrets.
  • Why search for new secrets if you comfortably can collect rents on everything that is already been done?
  • Social elites have the most freedom and the ability to explore new thinkings.
  • The world is flat. A consequence of globalization: people perceive the world as one, homogeneous, highly competitive marketplace.
  • IF it were possible to discover something new wound’t someone have found it already? The world is a too big place to discover something genuinely new.
  • At a company level: it’s happening when a company stops inventing things and starts to “collect the rent” on recent inventions.
“For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29).
  • Einstein (about the compounding interests)
    • “the eighth wonder of the world”
    • “the greatest mathematical discovery of all time”
    • “the most powerful force in the universe”
  • Less than 1% of new businesses in the US received venture funding
  • Total VC investments account for less than 0.2% of GDP. But venture-backed companies create 11% of all private-sector jobs and generate a revenue of 21% of GDP.
  • Have intentionality, we form plans and make decisions based on very limited information.
  • We’re less good at making sense of an enormous amount of data.
  • The exact opposite of humans.
  • Processing a huge amount of data.
  • But they struggle to make basic judgments that would be easy for a human.
Computers are TOOLS, not RIVALSINES
  • Man and machines are good in fundamentally different things. They together are a real superpower.
  • Google supercomputer:
    • 2012 – after scanning 10 000 youtube videos it learns to identify a cat with 75% accuracy. —> An average 4 years old can do it with 100% accuracy.
    • BUT a cheap laptop beats the smartest mathematicians in some tasks.
    • Humans and computers are not more or less powerful than each other, THEY ARE CATEGORICALLY DIFFERENT.
  • A hybrid approach:
    • PayPal: $10 million loss due to fraud transactions every month.
    • Using just robots to automatically identify fraud transactions didn’t work.
    • Computers are scanning a huge amount of data, scanning and analyzing millions of transactions. Then label the most suspicious transactions and let a human decide if the transaction is a fraud.
    • PayPal named this hybrid system IGOR and sold it to the FBI.
Nick Bostrom
  • Philosopher; Professor – University of Oxford; Director – Future of Humanity Institute
  • He describes four possible patterns for the future of humanity.
  • “The ancients saw all of history as a neverending alternation between prosperity and ruin.”
  • “(…) the whole world will converge toward a plateau of development similar to the life of the richest countries today. In this scenario, the future will look a lot like the present.”
  • Large-scale social disaster due to the ever-increasing power of nuclear weaponry
  • “This is what fuels our fears of the third possible scenario: a collapse so devastating that we won’t survive it.”
  • Large-scale social disaster due to the ever-increasing power of nuclear weaponry
  • “This is what fuels our fears of the third possible scenario: a collapse so devastating that we won’t survive it.”

The end!