Peter Thiel hardly needs an introduction; his name has been tied to some of the most successful companies of our time (disclosure: he’s an investor in Asana).
Over the span of his career, he’s had the opportunity to watch companies make it and break it; in 2012, he taught a class at Stanford University covering everything he knew about startups.The class, which was developed out of Founders Fund — and specifically, notes taken by a student — led to the publication of his book, Zero to One, and distills his knowledge into a series of contrarian questions that point to certain conclusions about what successful startups look like. Peter recently stopped by our office to share some highlights from his book with our team, and was a good sport about answering a lot of the questions we lobbed at him after his talk (a few included at the bottom of this article).
What should you be thinking about when you are trying to create a successful business?
We’ve pulled together our notes from the talk and Peter’s perspective, below.
Every moment in business happens only once
What I dislike about business books, Peter told our team, is that they all have a formula: the 7 (or 5, 8, 10) steps to success. But the truth is, every moment in business happens only once; the next Bill Gates won’t be building an operating system. If you’re just trying to copy, you’re not learning from them. This makes talking about startups a weird and challenging topic.
Science starts with the number two; business, not so much
In science, things are repeated and are experimentally verifiable. Unfortunately, business doesn’t work the same way. Entrepreneurship has no formula. So how can you be a ‘good’ entrepreneur? What I’ve found is that the answers lie in some tough questions. The ones that people have a really hard time answering either because it’s hard to have a truly unique perspective, or because it takes a certain level of courage to speak up about them honestly.
My favorite interview question is “tell me something that’s true that very few people agree with you on.” You can see how so many people are stumped by this inquiry. What ends up happening in business (and interviews) is that a lot of important questions — and answers — simply don’t get surfaced, until you start digging. That’s what I started doing with the startup class at Stanford and expanded upon in my book.
The difference between competition and monopoly (and why we’re mostly lying to ourselves)
One thing I was surprised to learn was that competition and monopoly aren’t really well-understood concepts. There’s an intellectual reason behind this: people have incentives to distort the truth. If you have a monopoly, you will likely pretend that you don’t (because you don’t want to get regulated by the government). And if you don’t have a monopoly, you’ll want to say there’s something truly unique and special about your business (you will beat out the rest).
There’s a psychological aspect to this confusion: we’re perversely attracted to competition in one way or another; we find it validating and we wrap a lot of our identity in competition.
But if a company is truly unique, I would argue that company is a monopoly and being a monopoly is something every business wants. The problem I see is that people believe capitalism and competition are synonyms when in fact, they are antonyms.
Take Google, for example, and ask yourself: why is it so successful, on so many levels? Because they’ve been able to carve out a unique category that has put them years ahead of their competition; they are not competing like crazy (the way a restaurant in San Francisco would, for example). But there’s another very important factor that differentiates successful businesses from those that are successful today.
If you can achieve monopoly, you can screw up all the other stuff.
Why durability is as important as growth
At the end of the day, you can’t just be the first Uber. You have to be the last Uber, too.
When most people evaluate the value of businesses, they tend to focus on growth metrics when, paradoxically, most of the value exists very far in the future. Of today’s most ‘successful businesses, three-fourths of their ultimate value will come from profit streams from sometime around 2025. But we bullishly focus on growth today because that is what we can measure.
The durability question is at least as important as growth; hyper growth without durability is what often leads to miscalibrated valuations in our industry.
Globalization, technology, and building the future
There are two major modalities for progress in our world:
- Globalization: Tracks horizontal growth and is primarily oriented in copying things that work.
- Technology: Focuses on doing new things; going from zero to one. This worldview is grounded in intensive, vertical progress.
When we think about last two hundred years there have been periods of globalization or technology. Technology has not been as transformative in the last forty years. Today, we divide the world into the developed and developing world (with the developing world ‘copying’ the developed). This is an implicitly anti-technological description.
By saying we live in a developed world, we are suggesting that we’re living in a place where nothing new is going to happen.
This is a conception we should resist by always asking ourselves, “how can we go about developing the developed world?” This is the question the most successful companies both in our space and others ask themselves every day.
5 Questions for Peter Thiel
At the end of his presentation, Peter answered our team’s questions about everything from his take on consumer vs. enterprise monopolies to falsifiable claims in business books.
Q: Do you think differently about consumer and enterprise businesses?
Peter: One counter-intuitive idea the monopoly question always leads me to is that you want to start with a small market. Then, take over that market and somehow grow over time. The most common mistake that is made by businesses is to go after markets that are too big. This, in my experience, is especially acute on the consumer side of things. Everyone seems to be trying to go after enormously big markets. We need to remember that there are more niche, ownable markets in the enterprise space.
Q: What do you think of Uber in light of self-driving cars?
Peter: I think this is far enough in the future that the business is worth building in the meantime. What I am skeptical about is that it’s not clear they have a monopoly…
Q: Can you be both first and last in the market? How long can a monopoly last?
Peter: If you had a 20-30 year run, I’d say that’s a good place to be. One of the questions I often get asked is “What are trends you see in technology?” because as a society, we feel a need to categorize. Frankly, I kind of hate that question. I believe that all trends are overrated. Big data, cloud computing. These words sound like fraud to me; they make me want to run away. When you hear something that sounds like it’s part of a trend, then it’s a buzzword. Take for example claims like “we are cloud computing software company number 10” — what this means is that you’re actually not differentiated. The telltale sign that you’re bluffing is an overabundance of buzzwords used to describe what you do. If you have something truly unique, it is often hard to explain to people what you’re doing.
Ultimately, what you want to be is the last mover, where you’ve carved a 20 year runway for yourself and left everyone else in the dust. But it is important to be first. If you do something that succeeds, it will grow quickly enough that other people can’t copy it. You can say Google was not the first search engine, but it was the first to have page rank, creating a new category for not just search but computer-driven search. Similarly, Facebook was not the first social network but the first company to solve the problem of real identity.
So, you always want to be first and last, the caveat being that people will often get your category wrong.
My bias is that you have something you have more substantial differentiation than less. it’s very hard to start a new semi-conductor company because it’s really hard to differentiate.
Q: What is the end game of this monopolization?
Peter: As an investor and an employer, you always want to be inside a monopoly but the social question is, “at what point are monopolies bad?” We have antitrust laws, intellectual property, and patent laws designed to protect businesses to a certain extent. My feeling is that monopolies tend to be bad when you’re dealing with a market situation where no one is challenging the status quo (i.e.: telephone companies creating artificial scarcity). In a dynamic world, where innovation is abundant and continually moving society forward, when you create something new, it leads to the creation of lots of monopolies (an example of this would be Apple). To date, software monopolies have not been that problematic.
Q: I don’t read a lot of business books. Does your book make any falsifiable claims?
Peter: I’m not sure I agree that falsifiability is precisely the correct criteria for the book. On some level, it is a description of what is actually going on: a look at what successful companies look like versus those that are not. This is strangely not understood because no one ever talks about it.
The claim I make in my book is that every successful company is a monopoly, and competition is for losers. On some level, the book is a re-characterization of what is going on. In my opinion, a good business book makes you think for yourself. If all the answers were known and repeatable, business would be very easy, and very boring.