Peter Thiel, the founder and original CEO of PayPal, the first outside investor in Facebook and a partner in the venture capital firm Founders Fund, offers his original perspective on entrepreneurship, investing, future profits and the VC “Power Law.” His illuminating essays began as lectures for his famous class on start-ups at Stanford University. Thiel contends that doing what’s already been done takes you on a journey to nowhere – from “1 to n,” or zero. But when you make something new – a business, a product or a work of art – Thiel believes you travel from “0 to 1.”

Globalization is an example of horizontal progress; technology is an example of vertical progress.

Peter Thiel is convinced that the strategy common wisdom regards as the smartest way to do business is, instead, the surest route to failure. To innovate, Thiel urges you to shun the usual formulaic solutions. Success comes from finding or inventing the road never taken and taking it. This is true, he says, even though creating something new in established organizations is difficult, and creating something new by yourself is even more so.

Thiel says progress takes two forms: horizontal and vertical. Horizontal progress duplicates or create iterations of something that is already successful. Globalization is practically the definition of horizontal progress: it does the same tasks in a new location. In comparison, vertical progress makes something new. Technological advances often demonstrate vertical progress. Globalization and technology can exist at the same time, Thiel notes, or dominate markets separately. The era from 1815 to 1914 experienced both. But from the end of World War I to 1971 – when Henry Kissinger’s visit opened China to trade with the West – globalization was scant, but technological progress boomed. Today, as globalization threatens to deplete the world’s resources, Thiel believes that technology has become increasingly crucial.

Widely revered lessons from the 2000 dot-com collapse are fallacious.

Thiel may raise eyebrows with his position that the collapse of the dot-com bubble in 2000 generated four fallacious axioms among investors and entrepreneurs. These assumptions, Thiel makes clear, still dominate Silicon Valley thinking, even though they are incorrect. Here’s the outdated dogma – and his take on a better idea:

* “Make incremental advances” –Hubris caused the dot-com bubble and almost sank Silicon Valley. Anyone who promises grand success is a charlatan or delusional. Keep your head down, and take one step at a time. Wrong. Instead of falling for this myth, risk being bold.

* “Stay lean and flexible” – To move with changing events, avoid strategic planning. You should “iterate,” experiment and shift your goals as events suggest. No, don’t do that: you need a plan, of course. Thiel states with conviction that a “bad plan is better than no plan.”

* “Improve on the competition” –To take clients from existing firms, offer an improved version of something they already know and like. Don’t attempt to invent an original offering or market. Today, when “competitive markets destroy profits,” that’s the wrong approach.

* “Focus on products, not sales” – Technology is for making offerings, not selling them. Distribution is secondary to developing products. Like these other bad ideas, this is axiomatic among start-ups. Wise entrepreneurs know better: Sales, Thiel says, are as important as products.

Every successful business is a monopoly.

Thiel views Google as a unique monopoly. Because it essentially has no competition in the world of search and search-driven advertising, it can devote energy and money to its offerings and how its impact on the world. Google is a “new monopoly.” It doesn’t crush innovation as old monopolies did because, secure in its position, Google can innovate all it likes. For Thiel, Google exemplifies his repeated insight that truly successful businesses become monopolies.

A Google-style monopoly can carry out innovation that benefits consumers and insures its own long-term profitability. Thiel suggests that too much competition – or competition that is too intense – means that just competing, by itself, will consume likely profits and leave each rival winning a market share that is too small to sustain it or to change consumer’s lives. The more competition in a field, the less profit. Thiel may surprise readers when he states that competing eats profits, so acquiring or merging with your rival beats fighting.

America’s love affair with competition is not good for business or education.

Thiel is almost strident when he insists that propaganda about the value of competition corrupts Americans from childhood. As students compete increasingly for available slots in higher education, Thiel asserts that the mantra of competition turns them into “conformists.” Neither Microsoft nor Google benefited from years of brutal competition. As they battled, they lost focus on their markets. Apple’s resurgence left both companies in the dust.

Thiel’s company launched PayPal in 1999. Elon Musk’s X.com soon followed. The two spent time and energy fighting one another. In early 2000, Thiel and Musk came to understand that they faced a larger foe: the coming dot-com meltdown. They met in a coffee shop – not in one another’s offices, Thiel emphasizes – and worked out an even merger. Thiel writes with pride about how they rode out the bubble’s crash together by combining resources, and they thrived.

Avoid disruption and consider whether your company can be a monopoly.

Why is Twitter valued at 12 times TheNew York Times’ capitalization? Thiel says it’s because investors prioritize future cash flows. Any business’s value is the total revenue it will garner “in the future.” A successful newspaper, for instance, will hold to a certain cash flow for five or six years. Tech companies will lose money at first, but are likely to earn big a decade later. Thiel cites, for example, how LinkedIn’s future cash flows will dwarf those of today. A firm with stellar future cash flows must be a monopoly, like Google. Thiel offers these characteristics of monopoly for you to consider as you analyze your company:

* “Proprietary technology” – This, Thiel maintains, is the most significant advantage. As Google’s search capability proves, true proprietary technology has a ten-fold lead over any competitors. To gain this advantage, create something new. Or, as PayPal and Amazon did, perform one crucial task exponentially better than anyone else.

* “Network effects” –These assets increase your product’s utility as its numbers of users increase. For example, the more people who join Facebook, the more benefit belonging to Facebook brings you.

* “Economies of scale” – Monopolies grow stronger as they get larger because, Thiel says, greater sales mean fixed costs have less impact on the bottom line. Twitter, for one, was ready to scale up from its inception. It doesn’t need to reshape its product to gain more users. Conversely, a service business, like a yoga studio, faces myriad obstacles to growing in scale.

* “Branding” – A powerful brand can bring a company a monopoly. Take Apple, which has a monopoly. Others might try to copy it, but only Apple epitomizes technological progress. However, focusing on branding alone will not generate a monopoly. When Steve Jobs regained command of Apple, he also ditched many non-performing products to focus on those that brought “10X” improvements.

Thiel offers profound advice in stark, bite-sized chunks: start small in a field you can monopolize. Consider taking over a small market. Find a community that isn’t served by a likely competitor. Don’t try to “disrupt” established companies. Eschew competition.

The “Power Law” emerges when you “follow the money.”

Thiel breaks down the venture capital (VC) world so every reader can understand. Venture capitalists, he writes, seek to spot, invest in and make big money on “early-stage” companies. Venture funds profit when the firms they invest in become worth much more or a large company buys them. Most early-stage firms don’t succeed. These companies align with a Power Law that says only a few will thrive. As a corollary of the Power Law, Thiel brings the fascinating insight that investors seeking a diverse portfolio will fail to put as much money into likely winners as they should.

Facebook manifests the Power Law. Thiel’s Founders Fund earned more from investing in Facebook than from all its other investments combined. He says the Founders Fund follows two hard-learned rules: 1) Only put money into firms with the chance to “return the value of the entire fund,” and 2) There are no other rules. Invest only in companies with a likely chance for “success on a vast scale.

Thiel recommends applying the Power Law to your life. According to the Law, starting your own company may not be the most profitable choice. You may earn much more by joining a profitable, rising company. The Law reveals that differences within a firm are nothing compared to the differences “between companies.” And the Law, Thiel points out, shapes sound start-up strategy: Just as one company is likely to outperform all others exponentially, certain markets will do the same. Seek a market with the same diligence you apply to seeking an investment.

Beginnings shape the life of a company or partnership.

Friends of the author named one of his...