Space Book Review: Peter Thiel’s “From 0 to 1


Peter Thiel and Ben Master's From 0 to 1
Peter Thiel and Blake Master’s From 0 to 1

From 0 to 1

Its not often that a book about the general development of companies has such direct applicability to space, but Peter Thiel’s book nails it in one.  It is a remarkable insight into the mind of a forward thinking venture capitalist and should be used as a general guide for those of us seeking to build a space business.

Since space is intrinsically a technology business, Thiel’s thesis on the subject (the book has far more of a feel of a thesis than a simple exposition) is that our general societal progress has stymied because of the lack of broad technological progress in the last few decades.  His statement defining from 0 to 1 is:

The single word for vertical, 0 to 1 progress is technology. The rapid progress of information technology in recent decades has made Silicon Valley the capital of “technology” in general. But there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

Thiel’s observation is that the last few decades have been marked by broad horizontal progress (globalization) from 1 to n, where the advances of China, India, and other rapidly industrializing and emerging economies are built around basically replicating the American model. This is what he calls 1 to n progress.  While building skyscrapers, superhighways, and mega-airports may be progress, it is not innovation.  While it is obvious that information technology has advanced in the last 43 years (his horizon of interest is 1971 to the present), we have not had the broad advance in technology necessary to assure the continued prosperity and advance of a global civilization.

Why 0 to 1 is Important

Thiel states:

In a world of scarce resources, globalization without new technology is unsustainable.

This is absolutely correct and something that many of us, beginning with Gerard K. O’Neil in the 1970’s have discussed as the counter, to the Limits to Growth mindset that really defines the beginning of Thiel’s modern horizon.  Indeed the very premise of the Limits to Growth mindset is that technology cannot save us.  As former Vice President Gore said in his book, “Earth in the Balance”:

The environmental crisis is a case in point: many refuse to take it seriously simply because they have supreme confidence in our ability to cope with any challenge by defining it, gatherings reams of information about it, breaking it down into manageable parts, and finally solving it. But how can we possibly hope to accomplish such a task? The amount of information and exformation—about the crisis is now so overwhelming that conventional approaches to problem-solving simply won’t work.

So in a nutshell Thiel and those of us who are technological optimists are the Yin to the technological pessimists Yang of the political class.  The technological pessimists cannot fathom that technology can solve the problems that we have today but of course they (the political class) can solve them using their favorite tool, politics and the coercive power of government.  This is the defining tension of our age in the west, and thus the question is how and what do we change things in order to show that technological progress is indeed possible, desirable, is our solution to today’s problems, and to foster it?

 Mining Cordiner for Context

What Thiel writes about in postscript is exactly what the CEO and Chairman of the Board of General Electric, Ralph Cordiner spoke about (later written in a book with the chapter title Competitive Free Enterprise in Space) in prescript in 1960 and gets to the core of both the problem and the opportunity that we have today:

….But we must recognize that there are growth tendencies in these government agencies that could overexpand under the pressures of the space program, unless proper safeguards are established. As we step up our activities on the space frontier, many companies, universities, and individual citizens will become increasingly dependent on the political whims and necessities of the Federal government. And if that drift continues without check, the United States may find itself becoming the very kind of society that it is· struggling against-a regimented society whose people and institutions are dominated by a central government……

Ironically it was the state directed technology development of the space program that sewed the seeds of our lack of progress since the end of the Apollo era! There is no question that what Cordiner presented as what he called “an alarmist position” in 1960 has come to pass.  Not only has Cordiner’s alarmist position come to pass, it is now preached by some as the ultimate solution to our problems today.  Again from Albert Gore in “Earth in the Balance” (page 305) for his third strategic goal:

The third strategic goal should be a comprehensive and ubiquitous change in the economic “rules of the road” by which we measure the impact of our decisions on the environment. We must establish—by global agreement—a system of economic accounting that assigns appropriate values to the ecological consequences of both routine choices in the marketplace by individuals and companies and larger, macroeconomic choices by nations.

All guided by the government, the same people that have decided that technology cannot provide our solutions!

So, we have come to the point where regimentation is extolled as the only solution to securing our future.  You need only chart when the U.S. stopped fostering technology development and traded it for our current path, and it coincides almost exactly with the timing of Thiel’s modern age of reduced technological development.  Cordiner had an answer to this, and it brings us back to Thiel:

Therefore it is my view that national economic and military progress will be faster and more solid, and the freedoms we cherish will be preserved, if competitive private enterprise does just as much of the nation’s scientific and technical work as possible-and government provides the legal and policy framework to stimulate outstanding technical performance.

Thiel’s Thesis

Peter Thiel of course is a venture capitalist, and a leader on some of the most successful entities in Silicon Valley.  In some ways Silicon Valley is the ultimate enclave of technological optimism in the world today.  How else would you have a university (unaccredited) called Singularity University, where they preach the absolute opposite meme of the pessimists; that we are on the cusp of a convergence of technologies that will usher in a new golden age of plenty and prosperity for all mankind.  Unfortunately this is treated almost like the invisible hand of inevitability.  Thiel addresses this:

New technology has never been an automatic feature of history.!!!

This is the essence of the second part of his thesis in that we have traded the definite future of technological progress that was deeply embedded in American culture of the post war world to what he calls the indefinite future.  Basically that we have substituted definite progress toward the future with some indefinite hope in the future.  We now think that things are going to get better, we just believe it, think of it as automatic, but as Thiel writes, automatic progress has never been part of history.  As a general trend this is how he states it:

Everyone learned to treat the future as fundamentally indefinite, and to dismiss as extremist anyone with plans big enough to be measured in years instead of quarters. Globalization replaced technology as the hope for the future.

In the space business we see this every day with the infinite number of NASA trade studies leading to indefinite plans for space exploration, that somehow never quite make it to reality.

It is an embedded assumption in parallel with Cordiner by Thiel that the way forward is via private enterprise, startups, and technological development.  His favorite ones are ones with a secret, a new way of looking at things, and with plans to do more than write some code, build a bit of market an then flip it to the big boys for a cash out.  He introduces an interesting term that goes to back to the opening of his book where he talks about the his contrarian question.  He states that he asks this of people that come to him wanting investment.

His contrarian question is this:

What is it that you believe, that few others believe?

His answer is:

My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more.

In this he is absolutely correct as no amount of globalization or indefinite trust in the future can solve the fundamental problems of energy, natural resources, pollution, and the desires of even the most humble in the world to have a standard of living that Americans have enjoyed.

Thankfully Thiel’s solution is not to ask for more government but to take the Cordiner approach and put his faith and financial resources in the ingenuity of entrepreneurs, and their answers to the contrarian question.  His seven Socratic questions that he asks in order to judge which companies he thinks have the greatest potential to bring the technological breakthroughs that are necessary for our future:

The seven questions.

  1. The Engineering Question

Can you create breakthrough technology instead of incremental improvements?

  1. The Timing Question

Is now the right time to start your particular business?

  1. The Monopoly Question

Are you starting with a big share of a small market?

  1. The People Question

Do you have the right team?

  1. The Distribution Question

Do you have a way to not just create but deliver your product?

  1. The Durability Question

Will your market position be defensible 10 and 20 years into the future?

  1. The Secret Question

Have you identified a unique opportunity that others don’t see?

These are great questions that are geared toward the breakthrough companies.  To me it is hopeful as it is all geared toward developing enterprises dedicated to definite progress in technology.

Read this Book!

To me his book is much more of a reconfirmation of the research, readings, and writings that many of us have done over the past several years related to space development, with the added bonus of being able to get into the head of a leading venture capital visionary.  Thiel is part of the Paypal Mafia that also has produced Elon Musk, who all of us in the space business know is a stellar embodiment of what Thiel writes about.  What I hope is that this book will become a necessary book on the shelves of all of our bay area VC’s and that it helps to create a mindset of investing in technology.

Thiel postulates something that has already been cast as controversial in the media, which is his belief in the power of monopoly.  Early in the book he goes into the fact that only a very few companies in any VC portfolio are stellar performers, mostly companies that are defacto monopolies, something the companies themselves try to hide lest they attract the attention and ire of the government.

The monopoly companies, like Apple, Google, Amazon, and others have sufficient profits to be able to experiment and innovate on a large scale, and that companies that are hamstrung in their profits by excessive competition do not have the resources to continue innovating and thus their growth halts or they become focused on other (fake) metrics of success like increasing the stock price by large share buybacks.

I would posit that the VC business follows a similar trajectory as the companies that they invest in.   A Kauffman foundation report from 2012 goes into this in detail in that there are only a very few Venture Capital organizations that themselves have the outstanding performance that gives them the resources to innovate in their investments and take risks in 0 to 1 companies.  As one of my investors once said, it is always easier to write the second check, and it is always easier to follow what has already been done.  Thus it is the super successful ones that have the resources to experiment, if they have the mindset to do so.

Thiel’s Vision

There is no doubt that Thiel, and others like Marc Andresson of Andresson Horowitz and Steve Jurvetson of Draper Fisher Jurvetson have followed this path.  They are among the most successful in the business here in Silicon Valley.  Most of them have invested in SpaceX, Tesla, and other technology ventures.  Some of them have long investment horizons, like SpaceX and it is only those VC organizations with sufficient stature and track record that can make these investments.

As someone who has pushed radical technology development in spacecraft development for a long time, it is a very hopeful thing to see someone of Thiel’s stature write something that will be read by his peers here in Silicon Valley.  There are many 0 to 1 space companies out here that have been starved for resources during the era of 1 to n investing.  Elon Musk and SpaceX has helped lead the way for space, its time to take the advice proffered by Thiel and work to make more of them!

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10 thoughts on “Space Book Review: Peter Thiel’s “From 0 to 1

  1. “Some writers have so confounded society with government” – Thomas Paine in Common Sense

    Dennis,

    You’re not only brilliant and forward-thinking with your policy recommendations, as always, but also right to point out the potential danger of how society can become dominated by an all-encompassing government.

    It’s the same danger pointed out by political philosopher Jacques Ellul, who in The Political Illusion said, “Men increasingly turn to the state for a solution to their problems, though the state could not solve them if it tried.”

    He continued by warning how such behavior inevitably leads to the following:

    Boundless inflation of government size and power.
    Increasing dependence on government by the individual.
    Decreasing control over government by the same individuals who comprise society, believing they control government, whereas in fact they increasingly surrender all their freedom to it.

    Keep working hard, as always, to effect greater safety and happiness for posterity. I look forward to your continuing policy advice and recommendations.

    Sincerely,
    Ronald Grey
    http://RonaldGrey.com/JoinMe

  2. Dennis – really insightful, particularly with regard to the ‘zeitgeist shift’ from optimism to pessimism and the resulting (and sad) dismissal of technology as a solution “set” for many problems. To go a bit further, in some extreme circles technology is painted as a _negative_, not simply dismissed as a potential solution. This is a frightening development in a country founded on (among other things) entrepreneurism that gave rise to one of the most powerful innovation and manufacturing juggernauts the world has ever seen.

    The only thing I’d add (to both Thiel and here) is that monopolies are not a requirement for change-leading tech companies. They represent a structure that enables significant impact (and returns for investors over time) and control of sectors, with obvious benefits for those in control of them. They have their own evils, which is that over time they begin to acquire some of the characteristics of intrusive government (barrier to competition, barriers to innovation being brought to market) but otherwise I have no quibble with his description of their utility nor your response. IF there was truly a “laissez faire” set of rules in operation, then they would falter on their own and be swept out of the way by innovators nipping at their heels…the danger is the marriage of corporate power to political power, as it always has been.

    Anyway, I digress – really thoughtful analysis – liked the Cordiner tie in – and your lessons for space entrepreneurs are on target. Thanks for writing this and I look forward to your next series of innovations!

  3. Dennis, I posted this comment below on Steve’s FB wall as a reply to yours, but am reposting it here for the sake of posterity. 😉

    I enjoyed reading your thoughts. Here is my (re-posted) comment:

    Interesting review of Thiel’s book. Clearly he (and you) have many cogent points, but IMO the libertarian approach he articulates neglects a critical aspect of how a healthy innovation ecosystem operates: the essential role of the state. Far from being a deadening hand on the private sector, a properly functioning state is fundamental to the emergence of new technologies and new economic sectors – those that are too early, too risky, or too large for private enterprise to properly invest in at the early stages. VC was designed to address this, and does – or did – to some extent, but VC (N.B.: Steve / DFJ and others are exceptions to this) is increasingly not focused on those sorts of patient, long-term, high-risk investments. (The reasons for that are complex, but Clayton Christenson has spoken recently of the pressure VC faces from its large pension fund investors to generate very quick ROI, which in turn is driven by corporations wanting to get quick returns so they don’t have to spend as much on pensions in order to get the same return. But I digress.)

    Now, whether or not the state actually is, now, doing what it should be doing as an entrepreneurial agent is another matter. I agree that many of our bureaucratic structures have become too rigid, legalistic, and risk-averse, but that is another matter since we are being normative/prescriptive here. (Note, too, that the same behavior applies equally to many corporations, as Thiel acknowledges. The problem is pervasive, and this is a point on which Thiel shines.) I would also likely agree with you, that – just taking the space program as an example – until the advent of CCDev/CCtCap etc, NASA has not been an agent for major technical innovation since the end of Apollo. But again, this is a political problem (i.e. pork), not an inherent dysfunction of the state, or a repudiation of the state’s proper healthy role. If anything, far from being a market-deadening oppressive Leviathan, the state has been in decline relative to the private sector. And to that extent, the essential state role in creating the conditions under which major breakthrough innovations can happen (and which are then taken up by the private sector to develop, flourish, and make a lot of people [justly] rich) has languished. VC doesn’t have the same kinds of resources, and as we are now seeing (again, DFJ et al excluded) is that they are subject to a different kind of (market) dysfunctionality.

    The state – in this case the U.S. Federal government – has played critical roles in the development of most (or at least a great many!) technological sectors that soon became bastions of private industry and indeed, the foundation of American prosperity. Railroads, the aviation industry, modern agriculture, the computer industry, the Internet… you get the idea.

    So yes, Thiel makes some interesting points as always, but in my opinion has a ideological blinker that somehow keeps him from seeing one or more critical pieces of the puzzle. If I may suggest another book, it would be Marianna Mazzucato’s excellent “The Entrepreneurial State”, whose underlying thesis might most easily be summarized by a quote from John Maynard Keynes:

    “The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”
    – John Maynard Keynes, The End of Laissez Faire, 1926

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