Book Reviews

Peter Thiel's Start-Up Manifesto

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

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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.

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  1. Too busy buying stuff with Paypal to comment?..

  2. Not sure if anyone here has used PayPal for receiving money, because it’s horrible. I don’t mean like a one-time gift from a friend either, I mean as a business. If you have used PayPal for your business they have probably at some point fucked you around, stolen from you, or held your money with no explanation or repercussions. If they haven’t then consider yourself lucky because one day procedures will be followed(tm.) and you will be less wealthy for it.

  3. Thiel’s ideas of benign, innovative monopolies only work in a politically ideal world. For instance, there can be no startups in health-care administration anymore; as a customer its Aetna and the boys or jail, basically.

    And I see the likes of Google slowly learning the regulatory capture game with the Obama events on-campus, sending in execs to save Barrycares, the saccharine video they had for a doodle in the last couple weeks – the one where happy, beautiful, multi-culti people roll through a sunny field of a net-neutrality world.

    I also sense an attempt for political influence by Amazon, but via more subtle strategy purchasing the Washington Post. Bezos got a financial loser to be sure; but also a great brand and social locus of chattering-class D.C. Bezos is instantly plugged into that world with one heck of a lobbyist and social secretary all in one, where influence meets the shady gossip of who’s getting really paid by whom, who;s sleeping with who, etc.

    1. So true. Monopolies are only rarely a result of free market forces anyway. If they are a result of those forces, they never persist for very long (because nothing attracts competition like excess non-protected monopolistic profits).

      So regardless of their origin (mostly govt, occas market); they ALL without exception turn their focus towards capturing the compulsory forces that only govt can provide. They may prattle on like a libertarian entrepreneur (usually with a bunch of Randian plutocrat worship); but they ALL without exception seek to expand govt to protect themselves from those who don’t have what they have. And like Thiel, they head down the road of ‘protect my future investment opportunities from the evils of competition’ (which is nothing more than an updated version of the old Progressive-era ‘efficiency’ meme).

      Adam Smith and classical liberals saw this problem. Modern libertarians usually don’t.

      “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all” – Adam Smith

      1. Modern libertarians are plenty aware of the problem of regulatory capture. The rest of your post after the first paragraph is just indulging left-wing BS memes (Randian Plutocrat Worship) and casting aspersions at Thiel.

      2. And like Thiel, they head down the road of ‘protect my future investment opportunities from the evils of competition’ (which is nothing more than an updated version of the old Progressive-era ‘efficiency’ meme).

        When Thiel mentions Galt’s Gulch in the book, it’s to point out that it can never exist, not to glorify the idea of it. Do you care to list an example of Thiel seeking to expand government?

        Have you even read the book? Thiel never makes the argument for government protecting anyone from competition. He makes the case that as an investor and entrepreneur the largest gains are to be made in markets where there is little competition. As an investor, the only time I would use my money to compete directly in an established market, say against a company like Walmart, is if I had an industry secret in my back pocket – that’s the 0 to 1 idea he’s talking about.

        And you do realize that Elon Musk just released all of Tesla’s patents into the public domain, right? The exact opposite thing he would do if your “modern libertarians just want to protect their future investment opportunities straw man were true.

        1. I completely agree that an investor is usually going to look for lack of competition in a space. Nothing wrong with that at all and that is obviously the source of profits.

          And the next step is going to be to protect that space from competition via government. Eg patents that allow the investor to capture the monopoly profits that govt protects from competition via the courts.

          Or protection for VC’s themselves as monetary intermediaries/distributors of institutional capital via the Federal Reserve and the Wall St firms that create that money in their role as primary dealers of govt debt.

          Or the more obvious regulatory/legislative capture of ensuring that any competition has to jump thru whatever hoops/’standards’/etc those with access/influence decide upon.

          And lets get serious about PayPal. In the US, paypal is not a bank because it prefers regulation under a different classification. In Luxembourg/Europe, paypal is a bank because it prefers that regulation there. Being powerful enough to pick and choose which regulatory system you prefer and avoid the one you don’t is pretty much the freaking definition of regulatory capture.

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  6. George Washington and the founding fathers? Washington’s first act as president was to get an advance on his salary and the rest of the “fathers” used their positions to feather their own nests. When I see people referring to those men as if they were infallible demigods somehow different from politicians today I just scratch my head.

    1. “Washington’s first act as president was to get an advance on his salary…”

      This maybe technically true, I’ve really got no idea. But if you are trying to generalize that Washington was trying to feather his own nest”, then you are historically ignorant.

      “George Washington refused to accept a salary as commander in chief, instead offering to claim only his expenses. Congress readily accepted this offer in 1775. …”

      http://memory.loc.gov/ammem/gwhtml/gwseries5.html

      “When I see people referring to those men as if they were infallible demigods somehow different from politicians today I just scratch my head.”

      I’m certain plenty of people have too rosy a view of our founding fathers, but they were still much better than our current crop tends to be.

      Our current national political leaders:
      Barack Obama, Joseph Biden, Harry Reid,
      Mitch McConnell, John Boehner, Nancy Pelosi

      Exactly how would you rate our Founding Fathers compared to our current Top Six?

      1. The more liberal framers weren’t libertarians, but they were as close as the nation is likely to see at this late date. Ron Paul wouldn’t’ve gotten along with them, but Rand likely would.

        The crop of leaders from Teddy on has been strongly Hamiltonian, so Boehner and McConnell have at least something in common with one of the framers.

    2. George Washington and the founding fathers? Washington’s first act as president was to get an advance on his salary and the rest of the “fathers” used their positions to feather their own nests.

      I beg to differ – George Washington is a truly exceptional character in history.

      Nobody has ever turned down ultimate political power the way Washington did at conclusion of Revolutionary War; his resigning his commission is forgotten today but was momentous in creation of this nation’s (initial) character. And this he did after cobbling a messy coalition and the French together to defeat the world’s then-superpower.

      Much of what made the Presidency ‘great’ were things Washington did as example, and long emulated until the present age. First of course was Washington’s serving two terms. Nobody was vainglorious enough to break that taboo until the inevitable rot emerged in the person of FDR.

      Founding Fathers being overrated I agree with entirely, but among that group Washington – and Benjamin Franklin – are true historical all-stars.

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  8. “Companies in this category… use their monopolistic profits…” And one of his examples is Amazon? They’ve lost money in most years they’ve been in existence and in those years it made a profit the margins have been minuscule.

    1. Just finished his book, and the example he uses for that Google and Facebook. Amazon he lists as a company that having to commit most of it’s revenues back into R&D to stay ahead of the game instead of accumulating profits.

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

    You left out “hates democracy”, which might be his most admirable characteristic.

  11. I think the more important and interesting things about Peter are the one we don’t find out from his book, because he has new ideas branching out in the future.
    Trusting your non-conformist innovation capacity Peter!

  12. So funny! If wealthy libertarians wanted libertarianism (consistent individual liberty), we’d have it within two 2-year election cycles. Sadly, they give pittances to the Libertarian Party, and then don’t even find out how those pittances are used.

    If the free market meant anything to them, it would exist. I can say that safely, comfortably, and with full awareness that I am speaking the complete and total truth from a position of knowledge. I’ve registered thousands of non-libertarians as Libertarians, and I understand voter profiling the way noone else in the USA does.

    Ironically, John Mackey is the worst offender: the guy who claims that corporations have a “corporate responsibility.” Let the poverty-stricken libertarian activists petition in front of your stores, Mackey, without calling government stormtroopers to pepper spray them and haul them away! (Mackey, in his magnanimity, says he allows the petitioners to petition far away from foot traffic, out by the public sidewalks along the roads! LOL! He “allows” just as much freedom of speech as what the clueless and totalitarian Supreme Court FORCES him to allow! LOL!!! Still funnier, is the fact that Ayn Rand was asked what should be done about businesses that didn’t tolerate speech on their property, and she replied that such businesses should be viewed as totally un-American or boycotted. So when will libertarians boycott Mackey’s Whole Foods? LOL!!!)

  13. Very ironically, the libertarian most criticized for being a “Randroid” and for disavowing the idea of corporate responsibility has the greatest sense of personal civic responsibility: T.J. Rodgers. Rodgers ran a stealth campaign to restore freedom of speech to his alma mater, Dartmouth U, in NH, while arguing that corporations have no responsibility to anyone but their shareholders.

    Most libertarians fall far short of the example set by Rodgers.

    This, to me, is more evidence for what I’ve always suspected: Most libertarians’ notion of libertarianism is skin-deep. They aren’t really libertarians, they’re contrarians. They like to shock idiots, by having a basic grasp of economics. –But they fall flat in the domains of law, philosophy, and history. Most libertarians want to be contrarians more than they want liberty. They are nice, wonderful people, but they will gladly sit on the sidelines and watch as America becomes a total dictatorship, much as the Social Democrats did in the Weimar Republic.

  14. Gone are the Lilburnes, Thoreaus, and Frederick Douglasses that once changed the world. The sociopathic system loves libertarian dilettante billionaires who make nice big hosts they can parasitize! …So long as they don’t actually interfere with sociopathic parasitism.

    Prediction: When the Titanic is finally beginning its vertical descent, they will panic and give the Bill Redpath Party $1M. (About 1/3 of what is commonly spent by the sociopaths taking over a single congressional district, and around the same sum the LP usually allows Bill Redpath to blow pretending to fight for “nationwide ballot access” for the LP presidential candidate.) …This won’t be enough to save America. If Ross Ulbricht is prosecuted, the shock will permeate the tech world, and freedom of speech for all but the monopolies will be gone. The monopolies will then find themselves in the role of 2nd power. …And they’ll slowly curtail all dissent and opposition, lest they be shut down by men with guns.

    At that point in time, the endgame will be clear: Mr Thiel and his pals will be expected to prattle on ineffectually about libertarianism, but should they ever truly attack the power structure, they will wind up like Schaeffer Cox and Ross Ulbricht himself: prisoners in the American gulag. Who knows how many years in the future this will be? Who cares?

  15. Patrick Henry and John Hancock risked violent death defending liberty.

    That’s more than the comparatively comfortable billionaires of today have been willing to do.

    Of course, in their defense, their areas of expertise are completely outside the area of winning back individual freedom. They literally have no idea how one would go about such a thing. Most have not read even the most basic books about how to win elections, etc., most are not familiar with how the west became a (temporarily) free society.

    And it shows.

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