Zero to One: Notes on Startups, or How to Build the Future

Smog in Beijing, arsenic in Bangladeshi water, bigger hurricanes striking major cities: In the 21st century, “cleantech companies” should have their hands full working on environmental issues. By 2012, though, 40 solar-tech startups had gone belly-up. A graph on page 149 shows that the index of renewable-energy companies, RENIXX, rose sharply between 2003 and 2007, from 500 to more than 2000. Then it fell dramatically in 2008 and continued to slide until, in 2012, the index was at 200.

Some might be tempted to blame this failure on government meddling, but Thiel identifies seven specific issues that a firm must resolve before it launches if it wishes to succeed. These issues are engineering a breakthrough technology, timing the launch correctly, starting with a small-market monopoly, choosing the right team, doing effective marketing, maintaining market share over time, and exploiting an opportunity that others have missed. According to Thiel, “If you nail all seven, you’ll master fortune and succeed” (150).

Thiel maintains that solar startups failed because they made incremental, not massive, changes to the technology. In 50 years, the industry has improved solar cell efficiency from 6% to 25%, a slow-growth process. With improvements this small, it was the wrong time for new companies to jump into the market. Different isn’t necessarily better, but these firms offered a variety of alternatives that didn’t improve on older tech. With this, they entered the huge, cutthroat energy market with no chance to lock up market share.

The solar companies’s teams were big on marketing but weak on engineering. Thiel points to company cultures of wearing suits, which echo traditional business culture, as a marketing failure; adopting the casual looks popularized by startup celebrities like Mark Zuckerberg would convey a forward-thinking image. Even so, they proved better at marketing to investors than to customers. One Israeli firm, Better Place, refitted Renaults with electric motors and swappable batteries and set up recharging stations. The entire process, from purchase to use, proved so cumbersome, limited, and hard to understand that it quickly went out of business.

Holding onto market share, especially in the face of fierce Chinese competition, proved the undoing of many solar startups. Thiel argues that this should have been foreseeable, though he concedes that no one could have anticipated the rise of fracking, which made fossil fuels cheaper and extended their cost advantage against solar.

While the companies all agreed that solar’s time had come, Thiel asserts that this was conventional thinking, and none of the firms stood out with exceptional ideas based on unnoticed truths about the market. They all believed they could “do well by doing good” (161), combining the profit-making ability of corporations with the socially beneficial traits of non-profits. These, though, are conventional organizational structures that, when combined, have little ability to do original work.

Thiel asserts that one cleantech company, Tesla, survived and thrived by answering the seven questions. Its technology is the industry standard; the company found the perfect moment to obtain a large government loan, one unavailable before or since; it started in a small market it could dominate—high-end electric sports cars—and ratcheted up to become the premier electric sedan maker.

Tesla’s team is hand-picked by Elon Musk, who Thiel calls a “consummate engineer and salesman” and whose staff knows they’re working in a business version of “Special Forces” (163). The company owns and operates its own dealerships, which is costly but creates brand loyalty and saves money over time. The brand is admired, and the company retains its market lead. Musk realized the poorly understood fact that going green is unfashionable, so he made sure his cars look stylish as well, out-competing boxy Priuses and Hondas.

In short, cleantech speaks to the real need for better, and more, sources of energy to power the growing demands of the world’s population. These issues require specific solutions, but historically, people simply invested in everything that seemed to be “green,” whether or not the companies had well-reasoned plans. Cleantech may yet become huge, but no startup will make money simply because their product is green. Instead, a new firm must create a superb solution, plan carefully, and start out in a small market.

Here, Thiel dissects the role of the founder: the mythical figure and the actual person. Most people have average personality traits, while a few have extremely good or bad traits. Founders of companies, though, tend to have more extreme traits, and usually they combine both strongly good and strongly bad ones at the same time.

A graph on page 170, titled “Normal Distribution of Traits,” shows a classic bell curve of personality types. The data line looks like the outline of a bell: It starts at the bottom left, climbs up and to the right, reaches a high point, then drops down and to the right until it again ends up at the bottom. At the low, left end are the small numbers of people with bad traits, such as weak, disagreeable, outsider, and villain; in the tall middle are large numbers of people with average traits; at the low, right end are small numbers of people with good traits: strong, polymath, charismatic, insider, rich, and hero. Thus, most people’s personalities are in the middle, while a few are at the edges.

Another graph, on page 172, is titled “The Founder Distribution.” It shows the same graph except upside-down: The data line looks like a bell standing on its head. The line starts at the upper left, drops down and to the right until it reaches the bottom, then climbs back up and to the right until it once again is near the top. At the high, left end are the large number of bad traits shared by founders; in the low middle are the small number of founders with average traits; at the high right end are the large number of good traits shared by founders. Thus, most founders’s personalities cluster at the extreme edges, while few of them are in the average middle.

Founders may be born this way, but they also may exaggerate their extreme traits. For example, Sean Parker was arrested as a teenage computer hacker; a few years later, he created file-sharing company Napster. Napster quickly gained 10 million subscribers but then got shut down by the government. Parker later became Facebook’s founding president but was forced out for allegedly using drugs. Portrayed by Justin Timberlake in The Social Network, a film about Facebook, he regained his reputation. Thiel asserts that, because of their extreme traits, famous leaders sometimes get blamed for society’s conflicts and are sacrificed as “scapegoats.” Michael Jackson was at first lionized and named king of pop, then condemned for drug use and illicit activities. Britney Spears, a pop superstar, became a target of gossip sites because of her health problems, and was embroiled in courtroom struggles over her personal competency.

Thiel traces these tendencies to startup founders and tech leaders as well. Bill Gates transformed from a nerdy, youthful software titan to a beleaguered defendant in government anti-trust suits. He stepped down as leader of Microsoft, which thereafter stagnated, and shifted to philanthropy. Like Gates, Steve Jobs pushed his company to unimaginable heights. Famously creative and eccentric, Jobs got kicked out of Apple in 1985, then returned in 1997 after the executives who replaced him nearly drove the company into bankruptcy. Under Jobs, Apple produced the iPod, iPhone, and iPad and was on its way to becoming the world’s most valuable corporation when he died in 2011.

With this, Thiel centers company founders as crucial to great product development; They succeed both because of and despite their great eccentricities. For their part, founders must realize that they can lurch from adulation to “demonization” in moments. They may be great, but they’re not gods, and people will punish them for arrogance. Thiel says this tendency is ok so long as societies don’t punish founders merely for being eccentric.

Thiel outlines four possible futures. The first is the ancients’s idea of alternating “prosperity and ruin” (186), but this is unlikely, given how widespread technical knowledge has become. The second is continued economic growth for everyone, which then stagnates at a plateau where everyone competes, especially for scarce resources. This might devolve into the third path: a massive war followed by extinction. The fourth path is accelerating technological improvement that leads to a “singularity [of] technologies so powerful as to transcend the current limits of our understanding” (191).

Thiel believes the singularity is the future we should be working towards. In order to achieve singularity, people must bring it about through creative inventions. Waiting won’t make it happen: “We cannot take for granted that the future will be better, and that means we need to work to create it today” (191).