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

Thiel uses the term monopoly in a specific way. A monopoly is a person or group, usually a business, which faces little or no competition in its market. This can happen in different ways, but Thiel specifically rules out “illegal bullies or government favorites” (25), the types that most people imagine when they think of monopolies. Instead, Thiel is interested in companies that come up with products that are so excellent that people will pay extra to have them. Demand for these goods is so great that firms can—and sometimes must—raise prices to moderate consumption and prevent scarcity. According to Thiel, such companies are doing good things for people by creating value, and they reap the rewards through increased profit and consumer loyalty.

The power law states that if one thing changes in size, a related thing will also change by a specific factor. For example, the larger an earthquake is, the less common it is, and small wars are more common than big ones. One example that Thiel uses to illustrate power law is that in business, a stable of startups can have one member that makes more money than all the others combined.

One version of the power law is the Pareto principle, also known as the 80-20 rule. It states that, in general, 80% of the outcomes come from 20% of the inputs. For example, 80% of the wear on a carpet happens in 20% of its area, 80% of traffic tickets are given to 20% of drivers, and 80% of profits go to 20% of businesses. The actual numbers usually aren’t exactly 80% and 20%, but the rule refers to a general ratio. For example, in one state, roughly 85% of taxes are paid by 5% of taxpayers. Likewise, men, who make up 50% of the world’s population, are the victims in 80% of all homicides.

A startup is a fledgling company, especially one funded by a venture capital firm. Most of the book’s stories about startups involve high-technology businesses because Thiel’s chief area of expertise is the tech sector. Though startups can be in any industry, they don’t adhere to traditional business models. Thiel asserts that startups must be launched with the right people, the right incentive packages, a sense of dedication to mission, and a perpetual sense of creative possibility.

To “10x” something—for example a product produced by a company—is to make it ten times better or bigger. A 10x product can be so popular that it monopolizes a market, and its producer can charge high prices and reap large profits. In the book, 10x is contrasted with lesser, fractional improvements like 2x or 20%: “Companies must strive for 10x better because merely incremental improvements often end up meaning no improvement at all for the end user” (151). Thiel believes anything less than high multiples of improvement will keep a developer trapped at the level of endless competition for small increases in market share. Thus, 10x sits at the core of Thiel’s theory of business success and market dominance. Zero to One helped popularize the term 10x and the ideas behind it.