SpaceX and Zero to One

SpaceX went public these past couple of days, and a lot of its old stories have been getting dug up again.

One of them: in 2008, SpaceX’s first three launches all failed, the company was nearly out of ammunition, and Elon Musk himself had been dragged to the edge of bankruptcy by Tesla. At exactly that moment, the Founders Fund run by Peter Thiel put in money and became one of the most crucial early outside sources of capital for SpaceX. Years later, the company became one of the most highly valued private companies in the world, and the paper return on that early investment grew to something close to absurd.

But SpaceX is only one bet in a long string of Thiel’s. In 2004 he became Facebook’s first outside investor ($500K, later returning a thousandfold), co-founded Palantir the same year, and earlier still had co-founded and sold PayPal. One big win can be luck, but a whole run of bets that all paid off—across payments, social, space, and big data—looks more like a repeatable kind of judgment.

I’ve long been curious about what exactly that judgment is. Look back at it and you’ll find it isn’t mysterious at all—it’s remarkably self-consistent, and almost all of it is written down in that book, Zero to One. And the intellectual foundation of that book can in turn be traced all the way back to his teacher at Stanford, the French thinker René Girard. But before getting into that philosophy, it’s worth stopping to look at just what kind of company Thiel bet on back then—because SpaceX itself is just about the most perfect footnote Zero to One could have.

What Makes SpaceX Unique

To understand why Thiel bet on SpaceX at the moment when it was least favored, you first have to see clearly just how counterintuitive a thing this company pulled off. It didn’t make rockets a little cheaper or a little faster; it rewrote the cost structure and the tempo of humanity’s access to space from the ground up.

The most immediate example is the reusable rocket. Before SpaceX, the default assumption for launch vehicles, unchanged for more than half a century, was this: once the first-stage booster carries its payload to high altitude, it crashes and is dumped into the sea, used once and thrown away—the equivalent of tossing an entire Boeing 747 every time you fly to New York. What SpaceX did was make the first-stage booster of the Falcon 9 reignite after finishing its job, adjust its attitude, and land vertically back onto a drone ship or a ground pad, to be recovered, refurbished, and flown again. Reusing the same booster more than a dozen times has become routine[4]. With that, the most expensive block of hardware in a rocket turned from a “consumable” into an “asset,” pushing the cost per kilogram to orbit down by an order of magnitude—against the traditional expendable rocket’s routine tens of thousands of dollars per kilogram, and the shuttle’s absurdly higher figure, the Falcon 9 dragged it into a range previously hard to imagine. This is exactly the “proprietary technology” barrier Thiel talks about: not a little better, but ten times better along the single most decisive dimension, cost.

Underpinning this capability is its vertical integration and rapid iteration. The traditional aerospace giants outsource layer upon layer and then integrate and assemble; SpaceX went the other way, developing and manufacturing the overwhelming majority of its parts in house, holding even its most critical components—the Merlin engines of the Falcon family, the Raptor for Starship—in its own hands. With the whole chain under its control, it could push forward with a hardware-intensive, almost “build it, blow it up, fix it” style of trial and error: the development of Starship has meant constantly building prototypes, test flying, blowing them up, getting the data, fixing, and building again, compressing the iteration cycle down to weeks and months. This is almost a different species from traditional aerospace’s “cost-plus” contracts and its endless timelines measured in decades—the former treats failure as fuel for learning, the latter treats failure as an accident that must never happen, and so it is slow, expensive, and conservative.

And so there is the third thing: disrupting the incumbents. For a long time, American launch was controlled by Boeing, Lockheed Martin, and their joint venture ULA, precisely on the strength of that guaranteed-profit cost-plus model—the more expensively you do it, the more you take home. With far lower prices and genuine reliability, SpaceX pulled the foundation out from under that monopoly, step by step becoming the workhorse for NASA’s crew and cargo missions and for commercial satellite launch worldwide. It went further still: rather than stop at “selling launch services,” it integrated its own launch capability downstream, using multi-satellite launches to put tens of thousands of satellites into low Earth orbit, weaving them into the Starlink constellation, and turning that into a satellite-internet business sold directly to consumers. Its advantage in launch cost was ultimately internalized into an entirely new market that nobody else yet had.

Put these points together and SpaceX’s originality lies not in the two words “cheaper” but in the way it redefined the cost structure and tempo of the space business—turning something once expensive, scarce, and playable only at the scale of nations into a commercial activity that is reusable, iterable, and scalable. This is creation in the zero-to-one sense, not replication in the 1-to-n sense. And precisely for that reason it is the best entry point for understanding Thiel’s judgment: proprietary technology, escaping competition, monopolizing one small market first before expanding to the stars—these abstract principles all find their physical counterparts in SpaceX. So let’s start with the little book that spelled it all out.

Zero to One

Zero to One was co-written by Thiel and Blake Masters, grown out of the startup course Thiel taught at Stanford in 2012, with Masters turning the class notes into a book[1]. It’s a slim volume, but one of the most re-read books on my shelf.

The title itself is the book’s whole argument. Thiel divides progress into two kinds:

• From 1 to n is horizontal progress, copying things that already work—doing a proven thing over again, going from one typewriter to a hundred typewriters. This is what globalization is good at.
• From 0 to 1 is vertical progress, creating something that did not exist in the world before—going from no typewriter to a typewriter. This is what technology is good at.

Copying requires no secret, only imitation; but creating requires you to believe in something others don’t yet believe in, or can’t even see yet. So Thiel poses the question that runs through the whole book: What important truth do very few people agree with you on? It’s a hard question, because a good answer has to satisfy two things at once—it has to be true, and almost no one has realized it yet.

Thiel calls things like this “secrets.” He believes a great many undiscovered secrets are still hidden in the world; it’s only that this age of ours—an age that worships luck and has grown used to the idea that “the big breakthroughs are already done”—makes people too lazy to go looking for them. And every great company is, in essence, built on a secret others haven’t yet seen—it saw something first that no one else had seen.

What impressed me most in the book is a kind of reverse thinking he keeps using. Take the twin of his famous interview question: What valuable business is nobody building? Most “good ideas” go unbuilt precisely because they’re actually bad ideas; the truly valuable ones are the things that look like bad ideas but are in fact good ones. Or take his overall attitude toward “competition”—almost the book’s other main thread, and worth telling on its own.

The Several Forms of Monopoly

Thiel has a much-quoted line: Competition is for losers[2].

His logic goes like this: in a perfectly competitive market, over the long run every company’s profit gets ground down toward zero—every extra cent you make invites a new rival to take it away, until no one has any excess profit left. So a business that has to keep itself alive by waging price wars, by grinding just a little harder than its rivals, is doomed by its very model to a hard life. What’s really worth doing is monopoly: only a company good enough to have no rivals has the slack to think about its product, its people, and the longer term, instead of fighting for its life every day.

Here we need to clear up a common misreading. The monopoly Thiel means is not the kind that squeezes out rivals through regulation or foul play, but the kind that forms because what you make is simply so good that no one else can make it. This sort of monopolist is actually always pretending to be in fierce competition (to avoid attracting regulators and envy), while companies struggling in the red ocean tend to pretend they’re one of a kind. To tell which kind a company is, just look at how it describes its market.

So where does a sustainable monopoly come from? Thiel summarizes several typical forms, and I’ll attach an example to each as I understand it:

• Proprietary technology. This is the most direct barrier. Thiel gives a quantified standard: your technology has to be ten times better than the runner-up along some important dimension; being just a little better isn’t enough to make users abandon their habits. Google’s search quality back then was an order of magnitude ahead of its rivals, a gap no one has closed to this day. SpaceX’s reusable rocket is the same category of thing—when others are still throwing their first stages into the sea as one-time consumables, being able to bring them back reliably and reuse them puts you on a different order of magnitude in cost structure.
• Network effects. A product’s value grows with the number of users—the more people use it, the more useful it is to each, and so it reinforces itself. But this kind of business has a counterintuitive starting point: it has to begin from an extremely small market. Facebook started at a single school, Harvard; early PayPal fixed its sights on a few thousand high-frequency sellers on eBay. Only after you saturate the density in a small pond do network effects kick in like gravity, and only then do you expand outward ring by ring. A network product that tries to serve “everyone” from day one usually can’t keep a single person.
• Economies of scale. A good monopoly business gets stronger the bigger it gets, because its marginal cost approaches zero. Software is the classic example: write it once, and the cost of selling one more copy is nearly zero, so it can scale almost without limit. By contrast, many service businesses (like massage or restaurants) are inherently hard to scale, because serving one more customer costs almost the same as before. Whether a business can “get easier as it gets bigger” is already decided in its model.
• Brand. A strong enough brand can constitute a monopoly on its own. Its moat lies not in user count but in mindshare: first claim a distinct spot in the consumer’s mind (premium, trust, identity), then convert that mindshare into pricing power—selling the same cost at a higher price for steadier repeat purchases, and hard to imitate or break with a price war. Apple is the model of stacking industrial design and brand mindshare into a barrier. But Thiel also cautions that a brand can’t be conjured from nothing; it has to be built on some real substance, or it’s just an empty shell.

String these together and you get the roadmap Thiel gives founders: enter through a niche so small that others look down on it, achieve monopoly within it, and then expand step by step into adjacent markets. Amazon started by selling only books, SpaceX by launching small payloads—monopolize a pitifully small place first, then talk about the stars. Conversely, forcing your way into a huge, crowded market almost inevitably means fighting a price war to the death.

I like to use a rocket to understand this: a company needs to push extremely hard early on, but once it “floors the gas” past some critical point and enters the orbit of monopoly, everything afterward gets much easier—you no longer have to keep burning fuel to push forward like an airplane. In recent years it’s become fashionable to say “do the hard, right things,” and I think there should be one more clause: hard, right things, once past that critical point, get easier and easier.

Mimetic Desire

But why do most people insist on crowding into the red ocean, scrambling to compete in the same homogenized way? Thiel’s explanation for this comes not from business but from his teacher, Girard.

Thiel took Girard’s course as an undergraduate at Stanford and regards Girard as the thinker who influenced him most deeply[3]. Girard’s most central idea is mimetic desire: most human desire is not spontaneous but imitated. We think we want something because the thing itself is good, but in fact we often want it only because we see someone else want it. Between the subject and the object of desire there always stands a “mediator”—what we are really imitating is that mediator.

This theory has a cruel corollary. As more and more people imitate the same mediator and chase the same object, they grow more and more alike, their desires collide, and it turns into mimetic rivalry. In the end, what people are fighting over has long since ceased to be the object itself and become merely the matter of “beating the other”—who the rival is matters more than what is wanted. Competition makes the two sides ever more homogeneous and binds them tightly together, burning up in mutual attrition the value they might otherwise have created. Girard further argues that ancient societies quelled this all-against-all mimetic conflict by pouring the tension onto a single innocent, buying temporary peace through the scapegoat mechanism.

Thiel carried this anthropology straight into business. As he sees it, the most common tragedy in the business world is a group of smart people caught in mimetic rivalry: because a rival is doing it, I have to do it too; because everyone is eyeing the same market, everyone crams in. Competition even has an ideological allure—we’re taught from childhood to fight for first place on the same track, until we mistake “beating the rival beside us” for value itself. The result is that everyone grows more and more alike, profits get beaten thinner and thinner, and no one actually creates anything new. He has a sharp line for it: competition makes us fixate on our rivals and lose sight of the things that are more important and more valuable.

And so the earlier business philosophy of “pursuing monopoly, escaping competition” and this anthropology of “mimetic desire destroys value” connect in Thiel: avoiding competition is not just a business strategy but a clear-eyed view of the human condition. Zero to one is precious precisely because it is genuinely original desire—when you do something no one else has thought of, and therefore no one is fighting you over, you automatically step out of that whirlpool of mutual imitation and mutual attrition.

Look back at Thiel’s bets and you’ll find them oddly consistent. What he favored was usually the direction no one was competing in at the time, even one the mainstream mocked: private rockets, big data for intelligence agencies, payments. None of these were “sexy” at the moment of the bet, and precisely for that reason no one was fighting him for them. What he was really looking for was never “a better competitor,” but the people with a chance to stand alone in no-man’s-land and build a 1 out of 0.

Maybe that’s the ground color of his judgment. It isn’t mystical; it just keeps asking, consistently, the same question: the thing you’re doing—are you imitating others, or creating something that didn’t exist before?

References

• Peter Thiel & Blake Masters. Zero to One: Notes on Startups, or How to Build the Future. penguinrandomhouse.com
• Peter Thiel. Competition Is for Losers. wsj.com
• René Girard. Deceit, Desire, and the Novel: Self and Other in Literary Structure. press.jhu.edu
• SpaceX. Falcon 9 — Reusability. spacex.com