Peter Thiel: Going from Zero to One

In teaching entrepreneurship or writing about entrepreneurship, there is a big challenge in it. I think there is no single formula, as you could tell from the last few speakers. It is always a very, very different story. Every moment in the history of business, every moment in the history of technology, happens only once. The next Mark Zuckerberg will not be building a social networking site. The next Larry Page will not be building a search engine. The next Bill Gates will not be building an operating system company. If you are copying these people, in some sense you are not learning from them.

This is why I think there is no science to business. Science starts with the number two. It starts with things that are repeatable and experimentally verifiable in one way or another. Whereas, I think every great company is one of a kind. The question is: how do you get from zero to one? So the starting point from my book, Zero to One, is this sort of anti-formulaic approach. It is to take this question of singularity and uniqueness as the central question.

I try to get at it through a variety of sort of contrarian questions: What great business is nobody building? Tell me something that’s true that nobody agrees with you on. These are often quite hard questions to answer because we think it is hard to come up with some new truth, or it often requires courage because you have to go against conventional wisdom in one way or another.

I want to maybe share two or three of these contrarian truths that I believe people generally do not understand. My book Zero to One is a whole set of these things—things that I believe to be true that most people do not agree with me on.

The Aim for Monopoly

First, a big truth that comes right out of this idea of unique businesses. I think that if you are a founder or entrepreneur, what you want to aim for is monopoly. You want to aim to build a company that is one-of-a-kind, that is so far differentiated from the competition that it is not even competing.

I think the conventional wisdom is always that capitalism and competition are somehow synonyms. I believe they are antonyms. A capitalist is someone who is in the business of accumulating capital. A world of perfect competition is a world where all the profits are competed away. If you want to compete like crazy, then you should just open a restaurant in Chicago.

The great companies, like Google—the paradigm example I use—has had no serious competition in search since 2002, when it definitively distanced itself from Yahoo and Microsoft. As a result, it has been generating enormous cash flows for the last 12 years.

I think there are sort of two different reasons this monopoly and competition idea is not understood. One is somewhat intellectual: the people who have monopolies do not talk about it. They pretend not to have monopolies, for reasons that I will leave to your imagination. And the people who do not have monopolies pretend to have something unique about their business because, otherwise, nobody would invest or give them any money.

The way you do this is: if you have a monopoly like Google, you will pretend that you are in a much, much larger market. So you will never, as Google, talk about the search business and say, “We have a 66% share of the search market, and we are much more dominant than Microsoft ever was with the operating system market in the 1990s.” You will instead say that we are a technology company, and technology is this vast space where we are competing with Apple on iPhones, and we are competing with Facebook on social, and we are going to build self-driving cars and we are competing with all the car companies in Detroit. There is just competition everywhere. So it sort of gets obscured by making the market appear to be bigger than it really is.

Conversely, if you were to listen to my talk today and run out of here and decide you had to start a restaurant immediately, and you talk to various investors, they would say, “Well, I do not want to invest in a restaurant because I know they all go out of business; I will lose all my money.” You will tell them some idiosyncratic story where this is a one-of-a-kind restaurant. It is completely unique and very different from all the others. It is the only British-Nepalese fusion cuisine in downtown Chicago.

So there is sort of this fictional story that gets told the other way. Because of these distortions that people tell about their businesses, I think this monopoly question ends up being very, very underappreciated and underweighted as a variable intellectually.

Competition Is for Losers

But I think there is also a second reason that this is not understood that well. The opening line of Anna Karenina is that all happy families are alike; all unhappy families are unhappy in their own special way. I think the opposite is true of business. I think all happy companies are different because they came up, they figured out some way to radically differentiate themselves and escape from competition. All unhappy companies are alike because they fail to escape the essential sameness that is competition.

The chapter in my book entitled “All Happy Companies Are Different” got excerpted by The Wall Street Journal, and they retitled it a little bit more provocatively with a title: “Competition Is for Losers.” The reason this is such a provocative title is because we always think that the losers are the people who cannot compete effectively enough. The losers are the people who are slow on the swim team in high school. The losers are the people whose grades or test scores are not quite good enough to get into the right universities or something like that.

The idea that somehow competition itself is something that we are perversely attracted to is very counterintuitive. And yet I want to suggest that there is always this incredible pull that competition has on us.

The sort of autobiographical anecdote in my book: when I was a teenager in my 20s, the advice I would have given my younger self was incredibly driven by these sort of competitive dynamics. My eighth grade junior high school yearbook: one of my friends said, “I know you are going to make it into Stanford in four years.” And sure enough, I got into Stanford four years later. Then went to Stanford Law School, and then ended up at a big law firm on Wall Street. It was one of those places where, from the outside, everybody was trying to get in; on the inside, everybody was trying to get out.

When I left after seven months and three days, one of the people down the hall from me told me it was reassuring to see me leave. He had no idea it was possible to escape from Alcatraz. Of course, all you had to do was go out the front door. But it was psychologically hard for people to do this because their identity was so wrapped up in the competitions they had won, the people they had beaten along the way, that they could not even imagine doing anything different.

This is why I think competition is always this very two-edged thing. When you compete ferociously, you will get better at that which you are competing on, but you will always narrow your focus to beating the people around you. And it often comes at this very high price of losing sight of what is more important or perhaps more valuable.

I think there is this very strange phenomenon in Silicon Valley where a lot of the most talented startups, a lot of the great startups, seem to be run by people who are suffering from a mild form of Asperger’s. I think we need to always turn this fact around and view this as an indictment of our whole society. Because what does it say about our society when anyone who does not suffer from Asperger’s, who is socially well-adapted, will be talked out of all of their original creative ideas before they are even fully formed? Who will sense, “This is a little bit too weird, that is a little bit strange, that sounds a little bit crazy. People are looking at me in a weird way.”

I think this is something that we must all realize is a deeply endemic problem. They have done these studies at Harvard Business School, which I think you can often think of the business school student as a profile in anti-Asperger’s. They are sort of very extroverted, often have no real convictions. You have a hothouse environment in which you put all these people for two years, and at the end of the two-year process, they have all sort of talked to each other and they have concluded they should all try to catch the last wave. And it is invariably a pretty bad idea. In 1989, they all wanted to work for Michael Milken, just a year or two before he went to jail. They were never interested in tech or Silicon Valley except for 1999-2000, when they timed the bubble implosion perfectly. And then around 2005 to 2007, it was all housing and private equity and things like that.

It is easy in some ways to make fun of people in business school or people who are sort of conventionally tracked, but I think we should recognize that we are all very prone to this. Already in the time of Shakespeare, the word “ape” meant both primate and to imitate. There is something very deep in human nature that is imitative. It has a lot of good things; it is how language gets learned by kids, it is how culture gets transmitted in our society. But it also can lead to a lot of insane behavior. It can lead to the madness of crowds, to bubbles, to mass delusions of one sort or another.

We always tell ourselves that we are not that prone to advertising, and I think that is something I would encourage all of us to rethink. We always think of advertising as something that just afflicts other people, that never afflicts ourselves. I think this is very far from the case.

So the monopoly/competition idea is not just this intellectual failure. It is also this thing where you have a tiny door where everyone is trying to rush through, and there may be around the corner a vast and secret gate that no one is taking. You should always find the secret path and go ahead and take that.

The Secrets Left to Discover

Two other quick ideas on things that I believe to be true that most people do not agree with me on.

I think there are many answers to this question: “What is true that people do not agree with?” Most of us actually do not think there are that many answers left. We think that all these answers have been discovered.

I sort of give a trichotomy in my book: conventions, which are truths everybody already knows; on the other end, mysteries, which are truths that we cannot figure out, that nobody in this world can figure out; and there are things that are in between that are hard. It takes a lot of work, but if you apply yourself you could figure those out, and I call those secrets. I think there are many secrets left.

Now, there are certain areas where it is not that promising to look. If you were growing up in the 17th or 18th century, there were some empty spaces on the map and you could become an explorer and discover some more secrets about geography. In the 19th century, there were still some empty spaces left on the periodic table of elements, and you could go into chemistry and discover some things in basic chemistry. So I think geography, basic chemistry—these are areas that have been fully explored. These are areas where you are not going to find any secrets. These are not promising areas where you will discover a new truth that no one else knows that can become the basis for a great insight or a great business.

But I think most areas are not like this. I think there are many directions we can go in where the frontier is still surprisingly close. There certainly has been an enormous amount of ideas and businesses that have been discovered in the IT space for the last 40 years, and there is no reason to think that is going to stop. Around computers, internet, mobile internet, software—there are many things. People find the ideas are often shockingly simple in retrospect. They are pretty hard to execute. You know, when we came up at PayPal with combining email with money, that was a secret. It was not an easy thing to figure out; no one else in the world had figured it out. But it was far from impossible to do. Once we came up with the idea, we thought it is amazing no one has thought of this yet; we have to really execute fast before anyone catches up.

So I think there are many secrets like this that are left to be discovered, and we see this with all the new businesses that emerge in these areas. I actually think that we should try to find some in a number of other areas. Everything from biotech to space technologies, all sorts of other areas of technology, I think have been somewhat underexplored in recent decades. It would be good if the cone of progress were not just this narrow cone around computers and the world of bits, but were expanded to include the world of atoms in many other ways. So the second idea is: there are many, many secrets left for us to discover.

Globalization vs. Technology

The third idea that I will end on, and this is the basic dichotomy in my book. I think for us to have a successful 21st century, we are going to have to have both globalization and technological innovation. I think these are two very different modes of progress, and people often use these words interchangeably. I think that is always a big mistake.

I draw globalization always on an x-axis. I describe it as copying things that work, going from one to n, horizontal or extensive growth. China is the paradigm of globalization today. To first approximation, what China needs to do in the next 20 years is just copy everything that is working in the West. You can maybe skip a few steps, but if it executes against that, the people in China will be much better off in the decades ahead.

Then I always draw technology on the y-axis. I describe it as vertical or intensive growth, doing new things, going from zero to one.

We can sort of see this big difference between globalization and technology if we think about the history of the last 200 years. There have been periods of globalization; there have been periods of technology. The 19th century was a period of both. From 1815 to 1914, you had tremendous technological progress and tremendous amounts of globalization taking place.

After 1914, with world wars, communism, all sorts of other events, globalization sort of went in reverse. The world became a much more disunited, much more fragmented sort of a place. But technology continued to go at a ferocious pace.

I would argue since maybe about 1971, when Kissinger went to China, globalization restarted. It began at a ferocious rate the last 40-plus years. Technology has been going a little bit more slowly, where it has been, as I already said, a narrow focus on computers and a little bit less of other things.

For the last century, unlike the 19th century, it has been a period where we first had lots of technology but no globalization, and we have now had a more recent period where we have had lots of globalization but only limited technological progress.

This change is reflected in a very different way in which we talk about today’s world. In the 1950s or 1960s, we would have described the world as being divided between the first world and the third world. The first world was that part of the world that saw relentless, accelerating technological progress. The third world was that part of the world that was permanently stuck, permanently screwed up in one way or another. So: no globalization, but lots of technology.

Today we would divide the world into the developed and developing nations. The developing nations are those that are copying the developed world. So this developed/developing dichotomy is a pro-globalization dichotomy. It is sort of a convergence theory of history where the entire world will become more and more homogeneous as globalization continues apace. But it is also implicitly an anti-technological dichotomy because when we say that we are living in the developed world, we are implicitly saying that we are living in that part of the world where nothing new is going to be done, where things are finished, they are complete. We can expect decades of stagnation and sclerosis, and the younger generation should expect to have a lower living standard than their parents. We have sort of this rather bleak view of the future.

I think we should not accept that sort of a label. We should not accept this idea that we are living in the developed world. So I will end by saying that I think we should always return to the very contrarian question: How can we go about developing the developed world?

Thank you very much.