Book Review: Zero to One

How do visionaries create something out of nothing? This is the central question Peter Thiel answers in Zero to One.

Zero to One has been in the Silicon Valley canon since it was published in 2014. Peter Thiel’s book reminded me of Poor Charlie’s Almanack: it’s a contrarian and non-conformist way to look at the world.

If you have an interest in technology and business, this book challenges conventional thinking. It’s about building world-class tech businesses that are so dominant they don’t have real competition, it’s about power laws, how to build and run businesses, and why distribution is crucial for success.

Iteration Isn’t Revolution

Going from zero to one isn’t about iterative improvements, it’s doing something an order of magnitude better than what exists. It’s radical innovation that transforms the world: like railroads replacing horse carriages.

Most companies are iterative in nature. They take something that already exists and enhance it; the improvement is usually small. This gives them a short-term competitive advantage, but because competition is relentless, eventually, they lose their edge and get squeezed by the market because everybody else also works on making things a little bit better.

But Thiel argues there’s a better way. Technology is about radically changing how things operate. Truly innovative companies are in a class of their own. They are so good that they effectively have no competition. Others try to catch up, and it takes them decades to get there. Radical innovators like Amazon, AT&T, Standard Oil, Google, GE, and Microsoft are or were like that. They were de facto monopolies because they were so good at what they did.

Capitalism and Competition

The best companies are in a class of their own; they are so dominant they can pretty much set their prices. Thiel lists four things that differentiate great companies from the rest:

  1. The best companies have bold and radical innovations, while others are happy with trivial improvements.
  2. The best companies have a plan with the endgame in mind, while other companies merely react to events and hope for the best.
  3. The best companies are so ahead they don’t have direct competition, while other companies obsess over the competition.
  4. The best companies take sales & distribution just as seriously as their products.

For Peter Thiel, competition isn’t a virtuous goal. To build a truly great company one has to become a dominant force by building something that’s unbeatable. Thinking about the endgame and how to get there is essential; one doesn’t just stumble into greatness, it requires deliberate planning and relentless execution.

Last Mover Advantage

Unlike first-mover advantage, Thiel argues that being the last company to dominate a market—and keeping that position—is what creates lasting value. There are four factors that enable great companies to dominate:

  1. Proprietary technology
  2. Network effect
  3. Economies of scale
  4. Branding

To build such companies, he advocates an approach similar to the one described in the innovator’s dilemma: find a niche market, dominate it, move on to another adjacent market, and repeat. One has to think about the endgame and be deliberate in the execution. A great example of this is Amazon. From the beginning, their strategy was clear: be the best online bookseller, then move on to games and boxed software, and then become more and more general. This allowed Amazon to build its infrastructure from the ground up and to be the dominant player in online retail today.

Power Laws and Secrets

Market dominance is crucial; understanding what drives outsized returns is equally important.

Peter Thiel talks about the Pareto principle in business and investment. Most of the effects come from a small number of causes. In a given industry or business sector, there’s usually a dominant company. This is also true with investment—most of a fund’s returns often come from a single investment. That’s why it’s so important for businesses to aim to be the number one in their category. The reward for being the best is an order of magnitude larger than being the second best.

How does one achieve these powerful results? By finding a secret, a truth that almost nobody else knows or believes. According to Mr. Thiel, there are still many things to discover in the world. I think he’s right on this; it sounds even more true today than in 2014: the world is less certain, and there are many dangers and opportunities.

How to Build a Business

Thiel states that there are three aspects to consider when building a company:

To make it successful, the founders have to get all three right. If any of these aspects is messed up, the company’s future will be compromised.

Make sure everybody at the company knows what their role is and what they’ll be judged on. Give each contributor ownership of something and let them run it; this will motivate them and they’ll run the company better. Personal ownership of an aspect of the company is a great way to ensure people give their best.

In the start-up world people have to be financially invested in the company’s future success. Stock options are the best way to ensure everybody works towards this. Thiel recommends compensating the CEO with mostly options and a maximum of $150,000 a year in cash. Conserve cash and give stock options.

Distribution, Marketing, and Sales

Thiel emphasizes the importance of distribution when building a new product. Distribution is often neglected by product developers, who focus too much on how to build a great product instead of getting it in the hands of customers. A bad product with good distribution will often win over a good product with bad distribution. Neglecting marketing and sales is a big mistake: a great product that nobody knows will always lead to failure.

I’m a software developer, and I have always been focused on the product side. This book clearly articulated that I need to pay more attention to sales and distribution.

When PayPal started in 1999, they gave a $10 sign-up bonus to build the user base, then they targeted eBay’s power sellers. eBay’s high-volume vendors needed PayPal because eBay’s own payment system was not good enough. This was a concentrated market with an urgent need that PayPal could completely dominate.

Zero to One is a Classic

The book is a quick and fun read, it taught me important lessons:

  1. Distribution and sales are crucial to a company’s success
  2. Boldness and careful planning are prerequisites to greatness
  3. Businesses must get their structure and incentives right to succeed

The book isn’t just about starting a company—it’s about recognizing and seizing opportunities to create something revolutionary. For anyone looking to understand how groundbreaking companies are built, Zero to One is an indispensable resource.

If my writing sparked any ideas, questions, or insights, I would love to hear from you.
Email me at henry@precheur.org I read and respond to each email.