In the spring of 2012, when Stanford law student Blake Masters decided to enroll in undergraduate computer science class CS183, it wasn't because he was interested in computer science, but rather in business startups. And CS183 featured a unique teacher: Peter Thiel, co-founder of PayPal and Facebook's first outside investor.

 

Most startup aficionados are familiar with Thiel. And even if they aren't, they've probably gotten a chuckle from the hit HBO series Silicon Valley, which featured a character by the name of Peter Gregory humorously based on Thiel. Or perhaps they saw him depicted in the 2010 movie, The Social Network.

As the class progressed, Masters decided to post his class notes on his Tumblr blog. Little did he know they would become an Internet sensation with more than a million page views.

And a book wasn't even a blip on Masters' radar screen. Fast forward to today and one of the most anticipated book launches of the fall: Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel and Blake Masters.

The book's title comes from Thiel's philosophy of progress: Going from zero to one is transformative, but going from one to n is incremental and, in Thiel's view, not grounds on which any upstanding entrepreneur wishing to launch a startup should tread.

I was fortunate enough to receive an advance copy. Zero to One, which is based on Masters's class notes, is without a doubt a book no entrepreneur can ignore. While the class notes are still available online and will remain so indefinitely, the book is a far more elegant treatment, one I enjoyed so much that I connected with Masters to ask him a few questions about the challenge of going from zero to one.

In your opening "zero to one" examples, you cite Bill Gates, Sergey Brin and Larry Page, and Mark Zuckerberg. But you seem to equate "new" with "better." Gates didn't create the first operating system. Page and Brin didn't create the first search engine. Zuckerberg didn't create the first social network. Correct my thinking, but weren't these all simply better and more successful "n" versions of what many would consider the true "zero"?

Going from zero to one isn't about being first in a technical sense. Actually, the most transformative companies are the last movers that come to define their industry. And you can’t get there by incrementally improving what already exists. Gates, the Google guys and Zuckerberg didn’t merely tweak existing offerings; they improved on them by orders of magnitude—and when you’re that much better, quantitative change shades into something qualitative.

Inventing something totally new is a zero to one achievement, but so is deploying impactful technology at scale. And, in a way, that’s even more interesting, since in business, it’s important not just to create value but also to capture some of the value you create.

There’s absolutely no question that American business needs to aim higher generally—and that’s why we wanted such a stark concept of “zero to one.” Unless there’s a way in which our standards are almost too radical, then they’re probably not high enough.

I love the thought-provoking, contrarian question you pose early on that forms the premise of the book, which is, what important truth do very few people agree with you on? So let me ask it of you.

Most people believe competition is a healthy spur to productivity, but I think it’s mostly dangerous and distracting. In college, I spent about half my time reading books; the other half, I spent training to make Stanford’s varsity basketball team. Ultimately, I didn’t make it. I think I was probably good enough—but that’s precisely the point: I was unthinkingly competing with better players just so I could get better and compete with them at a higher level. I was never going to be as good as the top guys, and my time would have been better invested elsewhere, but the competitive dynamics acted as blinders.

Something like this is true in business today: On the margin, people pay too much attention to what direct competitors are doing instead of focusing on unique and ambitious plans.

I chuckled at your great line, "lean ... which is code for unplanned." You rightly take issue with the modern mindset made popular by the "lean startup" movement, that entrepreneurship should be treated, as you put it, "as agnostic experimentation." Can you explain to all those who bought into the lean startup idea why a bad plan is better than no plan?

The Lean Startup is a good book with many good insights, but far too many people have learned to use “leanness” as a justification for not thinking through what they’re doing in advance.

A bad plan is better than no plan because it can at least point to an ambitious goal. For example, PayPal pivoted from making PalmPilot software to doing email-based payments, but the company was driven by a definite ambition from the very start. That’s why it was able to build a valuable business, even though that founding mission—to create a new currency to replace the U.S. dollar—went unrealized.

Great companies don’t cast about randomly for business models; they pursue a definite view of how the future could be really different. SpaceX wants to take humans to Mars; Tesla wants to end the gas-powered car. There’s nothing “lean” about that.

I enjoyed your chapter on competition and monopoly. What are some of the lies each camp tells?

It’s incredibly hard to think about markets objectively; we’re always biased to frame things in self-serving ways. Any company with a large market share will be tempted to exaggerate how much competition it faces. This is why Google pretends to be a multifaceted technology company that has to compete with other smartphone manufacturers and cloud storage providers and auto makers instead of acknowledging that it’s a search company that competes with … essentially no one.

Non-monopolists tell the opposite lie: “We’re in a league of our own.” Every restaurateur tells a story about how his restaurant is so unique, even though he’s operating in a really tough, mostly homogenous and low-margin industry. Without even trying to be deceptive, fierce competitors trumpet their uniqueness while the most unique and profitable businesses tend to hide it.

Can you give the OPEN Forum audience a few key pieces of advice on how to, in your words, "use a clear head to build a monopoly business"?

Start with a small niche market, and dominate that market. That’s it, really—every great business is unique, but this single rule is universally applicable. If you don’t worry that your initial market is too small, then it’s probably way too big. Don’t focus on scaling up or adding tons of features or anything else at first—focus only on dominating a small niche at first.

One of the more compelling concepts in the book is "the power law." Can you briefly explain it, why people fail to see it and what to do with it?

Our power law thesis is simple: Very often, things that can at first appear equal are in fact radically unequal. Everyone understands this a little, but it’s the kind of truth that no one could ever understand and internalize entirely. Our general life experience is fairly linear, and we all have this bias toward egalitarianism: Most moments seem pretty similar to the ones that come right before or after, and most decisions we make seem to differ only a few degrees in importance. Actually, some moments offer singular opportunity, and some decisions matter far more—almost unimaginably more—than most.

Start looking for power law phenomena, and you’ll see them everywhere. If you’re a professional, maybe you double down on developing your single most valuable talent rather than assemble a portfolio of exotic and minor skills. If you’re an entrepreneur, maybe you decide to join a great company while it’s growing fast instead of starting a new company yourself.

What's the one thing you want readers to take away from this book?

Don’t waste time competing with others. Instead, do something new and valuable and unique—there’s plenty left to do. As a society and as individual entrepreneurs, we must avoid both extreme pessimism and extreme optimism.

These mental states can seem like opposites, but they share the same self-defeating nature: A pessimist won’t ever try to do anything new or different, and an extreme optimist might not either because they think everything will turn out just fine regardless.

In fact, we can build a better future, and you can build a great business—but only if you believe that that's possible and work relentlessly to make it happen.

Blake Masters has followed the advice he's written and launched his own startup, called Judicata, a legal software company he started with $2 million in seed funding from Peter Thiel. You can connect with Masters on Twitter at @bgmasters.

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