Book Review: Zero to One

I.

Zero To One might be the first best-selling business book based on a Tumblr. Stanford student Blake Masters took Peter Thiel’s class on startups. He posted his notes on Tumblr after each lecture. They became a minor sensation. Thiel asked if he wanted to make them into a book together. He did.

The title comes from Thiel’s metaphor that ordinary businessmen like restaurant owners take a product “from 1 to n” (shouldn’t this be from n to n+1?) – they build more of something that already exists. But the greatest entrepreneurs bring something “from 0 to 1” – they invent something that has never been seen before.

The book has various pieces of advice for such entrepreneurs. Three sections especially struck me: on monopolies, on secrets, and on indefinite optimism.

II.

A short review can’t fully do justice to the book’s treatment of monopolies. Gwern’s look at commoditizing your complement almost does (as do some tweets). But the basic economic argument goes like this: In a normal industry (eg restaurant ownership) competition should drive profit margins close to zero. Want to open an Indian restaurant in Mountain View? There will be another on the same street, and two more just down the way. If you automate every process that can be automated, mercilessly pursue efficiency, and work yourself and your employees to the bone – then you can just barely compete on price. You can earn enough money to live, and to not immediately give up in disgust and go into another line of business (after all, if you didn’t earn that much, your competitors would already have given up in disgust and gone into another line of business, and your task would be easier). But the average Indian restaurant is in an economic state of nature, and its life will be nasty, brutish, and short.

This was the promise of the classical economists: capitalism will optimize for consumer convenience, while keeping businesses themselves lean and hungry. And it was Marx’s warning: businesses will compete so viciously that nobody will get any money, and eventually even the capitalists themselves will long for something better. Neither the promise nor the warning has been borne out: business owners are often comfortable and sometimes rich. Why? Because they’ve escaped competition and become at least a little monopoly-like. Thiel says this is what entrepreneurs should be aiming for.

He hates having to describe how businesses succeed, because he thinks it’s too anti-inductive to reduce to a formula:

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.

But he grudgingly describes four ways that a company can successfully reach monopolyhood: