An Executive Summary of

ZERO TO ONE

by

Peter Thiel

Who is Peter Thiel
Peter is a German-American entrepreneur and billionaire that co-founded PayPal. He also Co-Founded the Billion-
dollar company, Palantir, and was a large initial investor of Facebook (10.2% stake). Peter was providing lectures to
students at Stanford University and one of the students, Blake Masters, turned his notes into this book: Zero to One.

Preston and Stigs General Thoughts on the Book

This was a fantastic book for entrepreneurs. For anyone trying to start their own business and explore new ways to
create a product or service, this book will give you plenty to think about. Peter is a powerful thinker and some of the
ideas expressed in this book demonstrate his ability to see things from the inverse perspective. The main theme of
this book reminded us a lot of the Blue Ocean Strategy and The Science of Getting Rich. Both of those books are
dedicated to the same idea Peter imparts in this book: enormous value can be created when a business creates
something fresh and new. It can also be implied that when a company slightly improves and competes with existing
rd
products or services, little relative value is created for that business. Click here to read 3 Party reviews of Peters
book.

Preface
The next Bill Gates will not build an operating system and the next Mark Zuckerberg will not create a new social
network. You wont learn anything new if you just copy those that have succeeded. You might go from A-N, but not
from Zero to One. If American companies do not realize this, they will fail in the future. Companies should not fine
tune best practices, but find new and untraveled paths.

Chapter 1: The Challenge of the Future

When Peter Theil interviews people, he likes to ask them what unique truth they know that very few people agree
upon. It is a hard question because the American education system is flawed. When we have learned something to be
true, it is also something that a majority of people have agreed upon.
Horizontal progress is easy to imagine. That is when you improve something that you already know works. That will
take you from A-Z. Vertical progress is harder because you need to do something that has never been done before.
That will take you from Zero to One. China is prospering by horizontal progress. Globalization has allowed this to
happen. By copying or improving something that already exist, you will not get ahead. Technology is what has taken
you from Zero to One. You can have both horizontal and vertical progress, one at a time, or neither. Right now, we
experience globalization, but limited technology progress. The progress has mainly been made in IT. The future
depends on technology not on globalization.

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It is almost implied that the developed countries are leading, and other countries should aim to keep-up. Peter Thiel
does not agree. If China and India for example double their energy consumption it would be a catastrophic pollution
disaster using the practices from today. Globalization without technology is not sustainable.

Chapter 2: Party Like its 1999

The 1990s had a good image until the Dotcom bubble burst. Peter Theil himself was scared about a crash in the
technology market while he was running PayPal. It was not that he didnt believe in his own company, but people
around him were acting crazy. No one believed that the anti-business model of growing, while losing money, would be
sustainable. Peter had an acquaintance that had planned an IPO before he had incorporated his company.
PayPal was considered grandiose and even voted one of the ten worst business ideas of 1999 by a journalist. For
PayPal to work they needed 1 million customers as a critical mass. After early struggles, the growth rate became
exponential when the company introduced a campaign where new customers were awarded $10 for each account
established. The campaign was as effective as it was unsustainable, but the strategy worked, and it attracted plenty of
investors. That capital was enough to buy PayPal time to make it a success before the bubble burst. At the end of the
bubble, Peter develops lessons learned that contradict conventional Silicon Valley wisdom:

It is better to risk boldness than triviality.

A bad plan is better than no plan.
Competitive markets destroy profits.
Sales matter just as much as product.

Chapter 3: All Happy Companies Are Different

Consider the airline industry which has created a lot of value, but few companies can make a profit. Compare this to
Google that is creating less value, but is keeping the profits. Google makes so much money, that it is worth more than
3 times the value of all American airlines combined.
Economists explain this by categorizing Google as a monopoly. The high profit is made as consumers would have to
pay a higher price for goods and services. Compare this to the airlines industry, which Peter described as Perfect
Competition. Most profit is washed away by fierce competition by rivals in the market.
Peter Theil likes the idea of a monopoly. Consider Google, dependent on your definition, it has a monopoly for search
engines. Google does not have to constantly focus on competition, but can focus on innovation. The lesson is clear: If
you want to keep the profit and progress you should build a business that has a very unique competitive advantage
where rivals cant enter.

Chapter 4: The Ideology of Competition

Competition means no profit for anyone (from a pure theory position). So why do so many people like the idea of
competition? It is an ideology that our education system preaches more than anything else. The best students get
good grades and prestige if they solve the same assignment as everybody else just marginally better. The
competition continues and becomes even fiercer in higher education. The best of the best students are typically
rewarded with conventional and non-innovative jobs in law or management consulting. The opportunity costs for
society are enormous everyone is thinking alike.

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Chapter 5: Last Mover Advantage

The value of a business today is all the future cash flows from that company after being discounted at an appropriate
rate. An old, low-growth company, like a newspaper, might hold its value if it can sustain the current cash flows for 5-6
year. But, often, the value of the company dwindles as customers move over to alternative products. Growth
companies have the opposite trajectory. Some high growth companies might be losing money in the early years, and
have the potential for significant cash flows in the next 10-15 years ahead. PayPal and LinkedIn are examples of this.
(By the way, The Investors are a little skeptical of Peters enthusiasm for some growth companies and his earnings
forecasts. This seems very speculative from our position)
For a company to be valuable it must both grow and endure. He suggests focusing on short term growth because it is
easy to measure. These companies focus on monthly revenue charts and quarterly earnings reports. The most
important question to ask is: Will this business still be around a decade from now? Numbers alone will not give you
the answer. You must critically think about qualitative characteristic.

Chapter 6: You Are Not a Lottery Ticket

Many celebrities including Bill Gates and Warren Buffett argue that luck has a big influence on their success. Peter
Theil argues that we might be too quick to dismiss anyone who succeeded according to plan. While this cant be
objectively tested, as the sample size of the single persons success is always one, the reader of the book must have
the same opinion. Why else would he or she read this book if success was something completely random. Perhaps
Steve Jobs is the proof that you create your own success. He did not ask for the opinion of focus groups. He designed
for perfection, and he knew what he wanted. The main lesson to learn from Steve Jobs was he envisioned and
executed long term plans to distribute innovative products. Steven Jobs changed the world by careful, backwards,
planning.

Chapter 7: Follow the Money

In 1906 the Italian Economist Wilfredo Pareto discovered what would be known as the Pareto Principle. He realized
that 20% of the people owned 80% of the land in Italy. It was a concept, known as the 80-20 rule, which he found all
throughout nature. The biggest cities dwarf the surrounding smaller cities. Monopolies grasp more profit than
combining a majority of competitors. Money follows the same pattern. As an investor in venture capital, you should
not over diversify as the returns are not normally distributed. For example, some companies will fail, more companies
will stay flat, and a few superior companies will potentially return 10x there initial investment. If graphed, it might
look like an inverse probability plot.
In reality, the investor should focus on the few superior companies that get exponential results. Peter Thiels
investment in Facebook vastly outperformed the combined return of all the other investments in his fund. Palantir,
the second best investment, is set to make a higher return than all the other investments combined aside from
Facebook.

Chapter 8: Secrets
Why do so many people believe that there are not secret to be revealed anymore in the world? It might start with
geography. Just 150 years ago a lot of the world had not revealed itself to anyone. Today just by watching the
discovery channel everybody in the western world can see even the most remote locations from their coach. There
are plenty of secrets to be revealed, but if you dont believe you can find secrets, you will never find them. We see it in
the stock market where the common true is that you as individual investors cant know more than the combined

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market. In all social setting there are the prospects that you might be right, but unless the truth has been vetted as
conventional wisdom, few people will take the chance and perhaps be left alone.

Chapter 9: Foundations
Founding a company is just like building a house. You cant build it on a flawed foundation. The first critical decision
when building a company is whom you start it with. Choosing a co-founder is like getting married, and founder conflict
is just as ugly as a divorce. No one wants to think about what will happen if it goes wrong, and thereby they dont do
it. When investing in a company you should consider the founding team. Technical skills matter, but how the
founders work together is just as important.
In start-up companies there is a potential for conflict when ownership and control changes. This typically happens
between the founder and his investors. A classic example could be the founder wanting to grow the company and
keep it private, while the investor would like to cash out through an IPO. The board is very important. As a founder, as
well as an investor, you should strive for small boards of 3-5 people. Smaller board ensures execution and
effectiveness.
As a founder you should look to employ people to have equity or a regular full time salary from your company. There
is an exception for lawyers and accountants, however, everyone that does not own stock options or draws a full-time
salary is fundamentally misalign. They are biased to claim value in the short term, and not create value for the future.
That is why part time employees and consultant dont work well. You are either on the bus or off the bus.

Chapter 10: The Mechanic of Mafia

The first team Peter Theil built has been known as the PayPal mafia. The reason is that so many of his previous
colleagues have later helped each other with the foundation of a variety of great companies including: Tesla, LinkedIn,
and YouTube. The strong culture that originally shaped PayPal was not assembled by hiring the most talented people
from a pile of applicants. Instead it was assembled by people of similar interests and work ethics and they had a very
common goal they were working towards.
Recruiting should never been outsourced. As an employer in a start-up company, you should know the answer to the
th
following question: Why should the 20 employee work for you? Talented people do not need to work for you. They
have plenty of options and could likely work for a higher pay in a more prestigious company elsewhere. The right
answer is specific to your company and relates to the mission and the team of the company. If you dont know that
reason, the importance will not be unique, and you wont get the right talent.

Chapter 11: If you Build it, Will They Come?

In Silicon Valley, people are skeptical about advertising. They shouldnt be. Advertising works on everybody, and if you
dont acknowledge it, youre deceiving yourself. Advertising is not necessarily the obvious sales you see on TV to buy a
product right now. As a matter of fact, sales work best when it is hidden. Consider people that sell companies, they
are called Investment Bankers, while people that sell themselves are called Politicians.
Start-up companies should resist the temptation to compete with conventional companies for elaborate PR-stunt.
Instead they should focus on viral marketing that can lead to exponential growth.

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Chapter 12: Man and Machine

Many people are concerned that machines will replace them in the future. Self-driven cars, for example, may replace
taxi drivers. In general it is not that simple. Computers and machines are not good at the same things. Computers can
scan and filter large amount of data, but contrary to people, computers have difficulty with holistic judgments. When
you combine the strengths of machines with the strengths of people you will end up with something great. Machines
and people are not rivals and they dont compete nor replace each other like globalization. In the future, the
successful companies will recognize the strength of using computers and people to supplement each other. In this
chapter, Peter lists seven questions every founder should answer before starting a business: 1) Can you create a
breakthrough technology? 2) Is it the right time? 3) Are you starting with a big share of a small segment/market? 4) Do
you have the right team? 5) Do you have a way to deliver the product? 6) Will your market position be defensible 10
to 20 years from now? 7) Have you identified a unique opportunity that others dont see?

Chapter 13: Seeing Green

st

At the start of the 21 century, everyone looked to green technology. Politicians were mobilizing the population of
investors to pour billions of dollars into the new world of clean energy. It all turned out to be a bubble due to gross
government intervention and the supply of capital ahead of technology maturation.
Companies forgot how competitive the energy market was. They looked at the overall market and thought they could
strike gold if they capture a fraction of the market. Being a small fish in the big seas is not a good approach. The most
successful companies start with the goal to dominate their niche before entering into harder and larger markets. Just
think of Facebook that started up as a network just for a single campus. Another mistake is to be careful of simply
investing in a market with huge potential alone. Simply being a part of an industry that is bound to grow, does not
create any prosperity for the investors by definition. Companies cannot operate on macroeconomic trends alone; we
saw the same mistake as IT companies permeated the tech market in the late 1990s. All individual companies must
have a plan and product/service to support the value they will actually add to the emerging industry.

Chapter 14: The Founders Paradox

Founders traits are often extreme. They do not follow the normal distribution. Perhaps they are closer to being
inversely distributed. Think about a founder that is cash poor, but rich in terms of the equity in his company. Or think
about how many charismatic founders are both insiders and outsiders of their business. Peter contemplates the ago-
old idea of whether leaders are born this way or if there environment has shaped their behavior. Perhaps we all need
a king that we can idolize, when things are good, and a scapegoat that we can cast away, when we dont like them any
longer.

Conclusion: Stagnation or Singularity?

It is hard to say what the future will look like when even the most farsighted founders cant look more than 20-30
years ahead. We cant take for granted that the future will be better, and it means that we need to start changing that
today. Everything important to us is singular. Our task today is to find singular ways to create new things that make
the future not only different, but better by looking at everything as if it were new. We need to go from zero to one.

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