Book Reviews

Peter Thiel's Start-Up Manifesto

Why the PayPal founder and early Facebook investor loves monopolies, the Founding Fathers, and Lady Gaga.


Zero to One: Notes on Startups, or How to Build the Future, by Peter Thiel, Crown Business, 224 pages, $27

Just over 20 years ago, Supreme Court Justices Antonin Scalia and Anthony Kennedy made a decision that changed the world for the better. After interviewing Peter Thiel for the position of Supreme Court Clerk, they turned him down.

Peter Thiel, via TechCrunch

Instead of settling into a conventional life of well-compensated legal scribbling and relative obscurity, Thiel did an about-face and went on to co-found PayPal, help kickstart Facebook with a $500,000 investment, and emerge as one of the most successful venture capitalists in the world.

Thiel's financial success has allowed him to become a philanthropist with an eclectic portfolio. His money made possible the Seasteading Institute, which works to create floating ocean communities outside the control of any government. He has provided critical support to research aimed at radical life extension. He funded the Thiel Fellowship, which encourages young people with exceptional promise to drop out of college and pursue a startup.

Thiel's new book, Zero to One, reflects similarly nonconformist thinking. Each chapter is littered with ideas that will likely be unfamiliar to his target audience of businesspeople interested in startups and the future of technology. Thiel doesn't care much about incremental change-that's "1 to n" stuff, he says, not truly novel "zero to one" innovation. Instead, he wants to blow people's minds.

Singular creation, Thiel writes, often results in monopolistic companies. By monopoly, he does not mean companies with 100 percent market share or a government-granted guarantee to a particular market. He's talking about Google's relationship to online search or Facebook's to social networking: companies that have dominant positions largely because they're just so much better than the alternatives.

Companies in this category, Thiel argues, are the central drivers of innovation. They use their monopolistic profits to offer great employees above-market compensation and to invest significant resources in new products that might take years or decades to develop. If Google weren't insanely profitable in its core business, we wouldn't have the Android operating system that now powers most of the world's smartphones and we wouldn't be talking about the possibility of self-driving cars. If Amazon didn't dominate its core e-commerce business, we wouldn't have the Kindle or the prospect of drones delivering products to our doors in under an hour.

We don't need the Justice Depart­ment to break up these monopolies, Thiel suggests. If they're providing great products and services, the world is a better place for it. If they start taking their customers for granted, a startup will come along with something better and take the monopoly for itself.

Though Thiel eschews detailed case studies, precisely defined terms, and testable hypotheses, it's not hard to come up with examples to shore up his claims about beneficial monopolies. But in his effort to make the case that competition is overrated, Thiel glosses too quickly over the dynamics of fledgling industries. The stories of the early days of automobiles or planes or MP3 players are about intense competition, with dominant players-Ford, Pan Am, the Apple iPod-emerging years after the industry came into being, rising to the top by grabbing innovations and lessons from their foes.

Thiel's pro-monopoly approach challenges conventional economics, which is largely built on models that assume perfectly competitive markets. As an investor, Thiel isn't terribly interested in these markets, where price is driven down to marginal cost. As someone who thinks new technology is the key force behind human progress, he thinks hypercompetitive markets generate insufficient profits to allow the kind of investment he prefers.

Thiel applies the same principles to global political economy, where he thinks the construct of developed vs. developing countries is misleading. The terms themselves imply that developing countries will eventually "catch up," largely by incorporating advances that originated elsewhere. Thiel thinks a false assumption is embedded in this thinking: that innovation can be adopted in poorer countries faster than it can be developed in richer ones. The key to human progress, Thiel writes, isn't just dragging living standards in Cambodia up to those of Luxembourg. It's driving the kind of advances that make children pity their pathetic parents for not having grown up with flying cars and colonies on the moon.

Each chapter of Zero to One offers fresh insight into how we can get our jetpacks more quickly. The key driver is startups, Thiel's vocation. In addition to Facebook, he has funded dozens of successful ventures, from Airbnb to LinkedIn to Leap, the latter of which lets people control computers with their hands like Tom Cruise in Minority Report.

Thiel describes startups as slightly less extreme versions of cults, complete with bizarre, charismatic founders and a shared zeal that can seem slightly ridiculous to outsiders. Lady Gaga makes a cameo as Thiel muses on the performative aspects of eccentricity-the pop star's outlandish getups and self-conscious wackiness may have a great deal in common with Steve Jobs' turtleneck and reputation for obsessiveness. "Small groups of people bound together by a sense of mission have changed the world for the better," he says, whether they are the founders of Intel, the originators of the Royal Society in London, or George Washington and the Founding Fathers.

At PayPal, Thiel instilled a shared mission around creating a new global currency. PayPal, they dreamed, would not just lubricate e-commerce but undermine the possibility that nations could effectively steal from their own citizens through inflationary policies. PayPal didn't achieve that goal. Instead-in addition to selling to eBay for $1.5 billion and dominating the market in email-based payments-it spawned one of the most important alumni networks in the world. Former employees, often referred to as the "PayPal mafia," went on to found a mindboggling number of successful companies, including YouTube, Yelp, SpaceX, and LinkedIn.

The secret to success, Thiel argues, isn't doing well at school or pursuing a traditional career. The emphasis on regurgitating memorized information for a good grade in class has the same flaw as clawing one's way up the ladder in established professions such as finance, consulting, or law: Both engender intense competition to achieve pre-specified goals. As competition gets fiercer, rewards for the competitors dwindle. And in the stale environments of traditional school and traditional employment, there's no reward for introducing something fresh and new into the world.

Libertarians will find hints of a fellow traveler in this book, with a brief attack on "crony capitalism," digs at the subsidy-fueled clean-tech bubble, and a passing reference to Galt's Gulch. At PayPal, Thiel declares, "we preferred the capitalist Star Wars to the communist Star Trek." Thiel's donations to Ron Paul and other free market political candidates are no secret. At the same time, he resists the word libertarian. Perhaps that's because this book isn't really about politics. But one suspects the more important reason is that Thiel is so committed to original thinking, he cannot fully embrace an ideological label, even if he agrees with the key principles.

Those looking for proof of Thiel's arguments will not find much empirical backing for them here. Thiel cites no academic literature, and the man who was once the highest scoring student in a California-wide math exam includes few numbers in his book. His implicit reply to skeptics is the billions he's made and the explorations he's financed, which have already reshaped your life for the better and will almost certainly continue doing so.