An Introduction
The famous book written by PayPal co-founder and billionaire entrepreneur Peter Thiel in 2014, Zero to One, encompasses various anecdotes and opinions from his interesting experiences as a startup founder. This is a commentary limited to chapters 6 to 7, since the book has numerous topics throughout the book despite being a relatively easy read. As a disclaimer, this is not a review of Zero to One itself, but my personal take on some of the topics that Thiel introduces.
Zero to One, Chapters: 8 to 10
To start off chapter 8 of Zero to One, the section “Secrets” makes a philosophical splash into the secrets of the world. "Every one of today's most famous and familiar ideas was once unknown and unexpected".
In the first section, Thiel marks three categories of truths: there are highly-popularized conventional truths with limited use, truths that are secrets to the majority of people, and truths that are impossible to figure out— mysteries to us all. In the third category of truths, Thiel identifies the popular example of the mysteries of string theory— it is a mystery that cannot be truly tested because it pertains to the nature of "strings" that make up even the smallest particles. While learning secrets of the world is in our realm of capability, these mysteries are truths currently indecipherable to humans: "You can achieve difficult things, but you can't achieve the impossible." The opposite of mysteries are contained in the first category, conventional truths, easily testable platitudes which can be found anywhere and don't address something foreign to general knowledge. In the middle of these two categories, secrets are the possible and useful truths that all businesses aspire to find. To describe the second category, Thiel recalls Zero to One’s second major question:
“Recall the business version of our contrarian question: what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. “ Rather than something currently impossible, secrets come from the observable world of ideas and things.
In the following section, “Why Aren’t People Looking for Secrets?” he asks that exact question in many different ways. Rather than bringing a business topic into the fray immediately, he first develops his case for “secrets” against factors such as the ideas of fundamentalists like the Unabomber who lack faith in an evolving world, and the lack of discovery in our cultures. Then, he finally brings his point to the business world.
The first factor is the ideas of fundamentalists like the Unabomber that “all the word’s hard problems have been solved”, which contributes to the loss of faith in the technological progress. Thiel talks about fundamentalism, the shunning of “hard questions”, in groups and culture: the unquestioning beliefs of religion where asking too much is heresy, and the “modern religion of environmentalism” where “Mother Nature knows best”, and free marketeers. While I understand the motif that Thiel is trying to draw here, environmentalism and “free marketeers” are not in the same boat as religion at all.
Unlike religion, which was passed down from our ancestors who believed the same ancient writings, environmentalism and free market fundamentalism is not inherited nor are there many “hard questions “. Environmentalism, which is not a “religion” but a basic tactic for human survival, is based on fixing depletion of resources and creating sustainable technology. Environmentalists and their supporters ask only easy questions: does the world belong to us humans? If not, by what metric should we use the world’s resources in order to sustain it? Easy answers have easy solutions: the world is owned by all its inhabitants, so globally, governments have to reign in unsustainable corporations and provide alternatives using innovative technology.
Free market fundamentalism also hasn’t any “hard questions” to be answered, because it is simply an observation of an existing system by which the innovative world operates. By definition, as a participant in our capitalist system and avid entrepreneur, Thiel is a free market fundamentalist. Unless he believes that the government should intervene and restrict competition, there is no other possible descriptors for his beliefs. Mistakenly, Thiel believes that the opposite of free market fundamentalism is the domination of monopolies, but it is actually government intervention. Monopolies are a constituent of a free-market system, and they are not immune to competition either, regardless of their efforts. The only exception to the range of the fundamentalist perspective is that it will not apply in countries with state-backed monopolies, like China and other interventionist systems.
After he describes the factors of fundamentalism, Thiel summarizes, "The unknown seems less accessible than ever". While the previous factors were meant to show the validity of this claim, he now explains why it is the case: the lack of modern exploration, and the four regressive social trends: incrementalism, risk aversion, complacency, and "flatness". Of incrementalism, Thiel says that the education system is the gateway to the belief of slow progress, and that extends all the way up “through the tenure track” leading to a lack of agility in people’s career paths. Of risk aversion, he says that people fear being wrong leading to a contented lifestyle that avoids looking for new “secrets”. Of complacency, he marks the biggest culprits as the social elites who have the greatest ability to discover secrets, but believe instead in the mantra that society tells them, “you’re already set”. Of flatness, in his own words: “As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is ‘flat.’ ”; inevitably many people will perceive that there are others in the world permanently better than them which discourages their search for “secrets”.
All of these considered, Thiel provides a good theory to explain the lack of belief in a future with beneficial technological developments. Regardless of their beliefs, the future is made by those who believe enough to make a plan; those who cannot find “secrets” will have limited success in their endeavors. In the next section, “The World According to Convention”, Thiel well informs the reader of the necessity and process for finding secrets. As a sidenote, I applaud the fact that the previous chapter on indefinite optimism builds well into the order of Chapter 8 as a whole.
"The World According to Convention" highlights the converse notion that without secrets, one must believe in the conventions of the world as truth. In a democratic society without "secrets", one must believe that the world is perfectly just, since only in “secret” moral truths do people know the wrongdoings that can only end when the majority of people perceive it unjust. His foremost example of this is abolition of slavery: “At first, only a small minority of abolitionists knew that slavery was evil; that view has rightly become conventional, but it was still a secret in the early 19th century. To say that there are no secrets left today would mean that we live in a society with no hidden injustices."
However, Thiel's notion that the evils of slavery was a secret, as used in his example, is incorrect. Moving along the subject of “secrets”, one needs to make an important exception: most slave-owners and profiters already knew that slavery was wrong. There wasn’t any secret moral truth or hidden injustices that covered up the morality of their inhuman actions. Brave abolitionists, along with writers and leaders, decried the existing cruelty in their nation and brought about an freedom in open dissension where the Union could finally act under President Lincoln's lead— which simply meant war. As goes in history, those who are too blinded by their vested interests to care about any sense of morality can only be brought into line through conflict and strife.
A better example of a "secret" is something that is truly initially hidden to the majority of people. In the modern era, a perfect example of this is the famous whistleblower Edward Snowden's leak of telephone records proving the NSA's surveillance of the American public, which lead to a massive backlash against the U.S. government and a positive result. According to Reuters, in September of 2020, a U.S. federal court ruled that the U.S. intelligence agencys' mass surveillance program, exposed by Edward Snowden, was unconstitutional and potentially illegal. As a more general result of Snowden's martyr-like whistleblowing, he courageously drove the the general public to be a great deal more wary of the government's use of technology to gain access to our information in the digital era.
Using this definition, it better highlights a primary area of failure induced by rejected "secrets": economic ignorance of contrary perspectives leads to bubbles that cause markets to crash and devastate their own economy. This is the first area that Thiel makes broad and critical inferences in after defining secrets: “In 1999, nobody wanted to believe that the internet was irrationally overvalued. The same was true of housing in 2005: Fed chairman Alan Greenspan had to acknowledge some “signs of froth in local markets” but stated that “a bubble in home prices for the nation as a whole does not appear likely.” The market reflected all knowable information and couldn’t be questioned. Then home prices fell across the country, and the financial crisis of 2008 wiped out trillions. The future turned out to hold many secrets that economists could not make vanish simply by ignoring them.” Thiel leaves no stone unturned in his case that disbelief in hidden truths, for economists who only see bubbles, have and will continue to wreak havoc on the economy.
In the corporate world, when companies don’t believe in secrets, it leads to a tragic and massively preventable loss in value. In 2005, there were two factions in HP, “HP’s board was a microcosm of the dysfunction: it split into two factions, only one of which cared about new technology. That faction was led by Tom Perkins, an engineer who first came to HP in 1963 to run the company’s research division at the personal request of Bill Hewlett and Dave Packard. “ Tom Perkins was an older innovator of the company and a valued contributor of HP who "might as well have been a time-traveling visitor from a bygone age of optimism". In the other faction, Patricia Dunn was against technological progress at HP, leading to further decline from its initial drop from 2000-2005. Unfortunately, since HP did not believe in the “secrets” of new technology, they went with Dunn’s faction. Long story short, the issues of illegal wiretapping and red-tape caused by Dunn lead to its massive drop to $23 billion by 2012 from $70 billion when she entered in 2005. The decision to remove Perkin’s faction was a seemingly nonsensical one in retrospect, but it makes sense to Thiel: it only happens in the corporate world when management doesn’t believe in the “secrets” of technology.
Let’s quickly summarize the final sections of chapter 8, “How to Find Secrets”, and “What to Do With Secrets”.
In “How to Find Secrets”, Thiel first notes that secrets are divided into “secrets of nature” and “secrets about people”, with the latter being underappreciated for their insight into truths that don’t require a degree or many years of study. He says to look for secrets in places where “nobody else is looking”, those that counter the “standardized and institutionized” formats produced by education. Different fields have more practical use cases than physics, like astrology and nutritional science. "The road doesn't have to be infinite after all. Take the hidden paths."
In “What to do With Secrets”, Thiel provides a simple answer: use them in your company. If you tell too many people then it could be dangerous for you, as the interests involved may be disrupted. If you keep it to yourself, ideas rust and prove nothing to the world. As Thiel asserts, “in practice, there’s always a golden mean between telling nobody and telling everybody—and that’s a company”. These secrets— insights that look very simple in hindsight — have supported businesses like Facebook, Lyft and Uber. So I agree with Thiel when he says that "there must remain many great companies still to start.”
To begin Chapter 9, Thiel presses the importance of making good foundations in business with his humourously named “Thiel’s law”: "I stress this so often that friends have teasingly nicknamed it 'Thiel’s law': a startup messed up at its foundation cannot be fixed."
As Thiel does in previous subjects in prior chapters, he draws an important line for companies in every step of their business. In order to create a more accurate image of the dysfunctions caused by a lack of dynamic planning in early actions, he notes the biggest similarity between companies and countries:
"Companies are like countries in this way. Bad decisions made early on—if you choose the wrong
partners or hire the wrong people, for example—are very hard to correct after they are made. It may
take a crisis on the order of bankruptcy before anybody will even try to correct them."
For one, I agree, but I also have to applaud how Thiel accomplishes, from these interesting comparisons, his goal of bringing the ideas in his book to a larger audience than entrepreneurs.
One of the people with the greatest influence on a company is the founder, and Thiel notes that this added responsibility makes it important to provide a good company foundation. "As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation."
To make a clear path into creating a good foundation, one needs to select their partners carefully rather than making a blind guess: "Founders should share a prehistory before they start a company together— otherwise, they're just rolling dice". In the section “Founding Matrimony”, he talks about how his friend and co-founder at paypal Luke Nozek, had a company that Thiel invested in— the only problem was that Nozek’s old partner was unreliable and caused their company to crash, along with Thiel’s money. That’s when he learned this valuable lesson the hard way. Despite this, Thiel notes that some will choose the option of founding the company on their own as a sole proprietorship, but that will just create an inability to produce big results in the long run: it’s "very hard to go from 0 to 1 without a team."
Three concepts are introduced to determine misalignment in a company: “Ownership: who legally owns a company’s equity? Possession: who actually runs the company on a day-to-day basis? Control: who formally governs the company’s affairs? … A typical startup "allocates ownership among founders, employees, and investors", possession to "management and employees", and control to the comprising board of directors, founder, and investors. This can work in practice but also cause opportunities for misalignment."
Misalignment comes in many forms, such as employees and staff in horrid places like the DMV (Department of Motor Vehicles), who hold too much power over the enjoyable experience of customers, and CEOs without a vested interest in the company's improvement for shareholders
As for the solution? Thiel says making sure that company boards are small. “A board of three is ideal. Your board should never exceed five people unless your company is publicly held. (Government regulations effectively mandate that public companies have larger boards —the average is nine members.) In other words, an effective board is small”
To add to this solution, Thiel draws from his own experience to make the proposition to use equity instead of money; equity trumps the dollar in insuring the loyalty and alignment of one’s employees:
“Anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned. At the margin, they’ll be biased to claim value in the near term, not help you create more in the future.”
According to Thiel, this also means hiring part-time employees and contractors will not work for forward-looking founders.
One point of contention in his solution is his beliefs noted in the next section “On the Bus or Off the Bus”. His major point in this section is that “As a general rule, everyone you involve with your company should be involved full-time.” That’s all well and fair game, however, I disagree with the point that Thiel makes, "Even working remotely should be avoided, because misalignment can creep in whenever colleagues aren’t together full-time, in the same place, every day." This has been proven flagrantly false during the day-to-day remote work of employees during the pandemic in 2020 from the fact that productivity has not significantly gone down for most businesses. If you are starting a business or working as an employee, online is as good a medium as any to keep aligned to the goal of your business.
For the next section, Thiel summarizes what he means when he says “cash is not king”: "A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary." His primary example of a successful venture by a CEO who leads by example is the CEO of Box, who paid himself less than all other workers 4 years after the founding.
High cash compensation and cash bonuses for workers does not encourage creating value for the future, according to Thiel, "Any kind of cash is more about the present than the future"
In terms of vested interests, he explains in more detail why equity beats cash: "Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future. Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned."
Again, since people only have one chance at the very start of the startup to create the set of rules that will "align people towards the creation of value for the future", one needs to plan meticulously and that includes avoiding misalignment (in ownership, possession and control), and founders leading by example (e.g. Box CEO).
In the final section, Thiel makes a fitting conclusion to this chapter on foundations with a quote that describes relentless progress: “He who is not busy being born is busy dying. " - Bob Dylan.
Likewise, he asserts that the nature of business follows the same logic: "[The founding of a company] lasts as long as a company is creating new things, and it ends when creation stops." I find that this advice is sound for all companies, and I would add that this creation is brought about by beneficial competition, a belief in technological progress, and the founder’s definite optimism for the future.
Within the tenth chapter entitled “The Mechanics of Mafia”, Thiel proceeds from the company foundations to provide insight on what to do when the company is established. What does one need in a company after they have all of their members in the right order? He begins by looking at “company culture” — which according to him is not able to be designed or created by offering perks — as the current state of the company: “ ‘company culture’ doesn’t exist apart from the company itself: no company has a culture; every company is a culture. A startup is a team of people on a mission, and a good culture is just what that looks like on the inside."
Inevitably, one will meet face to face with one’s company’s culture, and Thiel makes it clear that it is no more than that meets the eye. His team, for example, had no weak links; every member was valuable to the vision of the company, exemplified when Thiel details that his team, the "PayPal Mafia", went on to form companies with no less than $1 billion of worth each: "Elon Musk founded SpaceX and co-founded Tesla Motors; Reid Hoffman co-founded LinkedIn; Steve Chen, Chad Hurley, and Jawed Karim together founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp; David Sacks co-founded Yammer; and I co-founded Palantir." By listing their accomplishments, Thiel is not bragging; he is making the point that he initially saw the competence of each teammate, the company culture of the “Paypal Mafia” incubated that talent, and once they left the company they produced results that prove themselves as visionaries of the future.
What more, these types of relationships are the building blocks that make up the teams that combine to form good “company culture”, so one cannot just create a team based on transactional relationships even if it seems the easiest route. "If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well— even in purely financial terms"
Of course, this is why Thiel hired his team in a non-transactional way to begin with: "...we set out to hire people who would actually enjoy working together. They had to be talented, but even more than that they had to be excited about working specifically with us."
In Thiel’s opinion, in a forward-thinking corporation not only do you want your founders and board to enjoy working together but your employees as well. According to his advice, you want to hire a "20th" employee that answers that his reason for wanting to join is about your individual company's "mission" and "team", not just either. As Thiel says, “You probably can’t be the Google of 2014 in terms of compensation or perks, but you can be like the Google of 1999 if you already have good answers about your mission and team.”
So, a company desiring a good team doesn’t want to fight a losing battle with the "perk war", instead one rewards motivated employees with unique and “irreplaceable” work on new problems amongst other good employees. This grating but worthwhile effort builds up as a snowball effect and brings together a culture of progress. Thiel believes the startup uniform symbolizes this method of team-building: "The startup uniform encapsulates a simple but essential principle: everyone at your company should be different in the same way—a tribe of like-minded people fiercely devoted to the company’s mission."
In a similar statement to Thiel’s, Max Levchin, one of his co-founders at Paypal, said that "startups should make their early staff as personally similar as possible". The reason for this is a good idea is that the company culture should reflect the team, Thiel says, so the homogeneity of early staff’s motivations helps set the culture for the company. A commonplace problem that arises for startups and prevents this motivational culture is fights: most fights inside a company happen when colleagues compete for the same responsibilities. So in the section, “Do One Thing”, Thiel advises one to methodically designate each employee with the responsibility of just one thing each. This helps encourage post-professionalism relationships and internal peace. A perfect methodology of leading is the hallmark of a company’s success, and from his extensive experiences, Thiel identifies all the right solutions in view of the fact that these same frayed employee relationships can be the true cause behind a failed startup.
To wrap up the discussion regarding company culture, Thiel plots a linear “box-like” plot on that topic, with consultants (nihilism) on the left side of the scale, and cults (dogmatism) on the right side, where "0 to 1" (the best startups) leans toward the cultish side of company culture.
In an unadorned manner, Thiel declares, "The best startups might be considered slightly less extreme kinds of cults.” But according to Thiel, what differentiates them is that startups are fanatically right about a unique “secret”, rather than fanatically wrong on the important things.
In conclusion, this quaint description of startups seems like it is more than relevant in this day and age where tech companies are started by young founders of teams like those comprising the "PayPal Mafia". In that tech-driven environment they bring ideas that the world has yet to explore into fruition. I believe that many more startups are likely to arrive at the conclusion that Thiel made, where they invest in company cultures through distinctive team-building with a cult-like fervor for the "secret" as Thiel calls it, or "the next big thing" as Steve Jobs does. And those startups with the most visionaries will build the future technology, the ones that bring in the best innovators from the Stanfords and the Yales, or from the Tokyo U and the Oxfords, or the University of Toronto students and the students from University of Munich. All of these innovators will build the "cult-like" teams that drive the next economic boom and that's not a bad thing, in my opinion.