I had the good fortune yesterday to attend a conversation between Teppo Felin, Professor of Strategy at Oxford’s Said Business School, and Peter Thiel, co-founder of PayPal and recent author of the bestselling book Zero to One: Notes on Startups or How to Build the Future.
Apart from being a co-founder of PayPal, Thiel is also known for being the first outside investor in Facebook, taking a 10% stake in 2004 for $500,000. He now sits on the company’s board of directors.
As if that weren’t enough, Thiel is also:
- Co-founder and chairman of Palantir, an American software and services company;
- President of Clarium Capital, a global macro hedge fund;
- Managing partner of Founders Fund, a venture capital fund with $2 billion in assets under management;
- Co-founder and investment committee chair of Mithril Capital Management, a global investment firm; and
- Co-founder and chairman of Valar Ventures, a globally oriented venture fund.
Needless to say, I didn’t want to miss this conversation with one of the world’s tech startup demi-gods.
Below I highlight ten (10) of the key lessons shared by Peter during the discussion.
- When it comes to teaching entrepreneurship and innovation there is a certain paradox. How do you offer a formula for how to do new things? Science always starts with experiments and every moment in the history of technology happens only once. For example, the next Gates won’t create an operating system and the next Zuckerberg won’t start a social network.
- A lot of great entrepreneurs have certain diametrically opposed personal qualities. They will be, for example, people who are very stubborn but yet still quite open minded.
- Imitation is how culture is built, but it is also how things go wrong. People who are hyper-socialised (for example, business school students) are more likely to follow the big social trends and more likely to be talked out of their truly interesting and original ideas before they are even fully formed. Innovation requires a certain willingness to buck the trend.
- In a company, you want to unite people around a common mission which differentiates the company from the rest of the world. For example, Elon Musk’s company SpaceX is the only company aiming to go to Mars. At the same time, within the company, you want the roles to be as differentiated as possible. Conflicts tend to arise when people’s roles are too similar.
- There is not enough time to A/B test every idea you might have. We live in a world which is far too skewed towards A/B testing, and not enough towards mission driven and vision driven companies.
- If you define the culture of a company the way an HR person would, then that’s probably evidence that you have no culture at all. You shouldn’t think of a culture as “having foosball tables and lava lamps” or anything generic like that. You should define culture around the common mission of the company.
- Assuming it were possible to reduce innovation to a formula, Thiel says the three part formula for a successful startup would be to have (1) a great team, (2) some great technology (because Thiel is a tech investor), and (3) a good business strategy.
- A startup should have a great team, and the team should in fact be a team. You need very talented people who can work well together. Preferably people who have known each other for a decent period of time, and who have complementary skills. When it comes to finding a startup co-founder, Thiel notes (tongue firmly in cheek) that “you don’t want to get married to the first person you meet at the slot machines in Las Vegas”.
- Business strategy is about having a story which explains how the startup will move towards building a monopoly. You can have a great team, and great technology, and no business at all. If your business creates X dollars of value and you capture Y% of X, most people forget that X and Y are independent variables. In most cases Y equals zero percent (0%).
- Investment capital is often deployed in extremely inefficient ways. Thiel notes that there is a very big difference between investing your own money, and investing other people’s money. When you invest your own money, you are just trying to generate good returns. But when you invest other people’s money, you have two objectives. Number one is to get good returns, and number two is to look like you’re going to get good returns. And the disconnect between those two can be much larger than people would typically think.