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How to Build a Company That Hasn’t Been Built BeforeWhen entrepreneur and investor Peter Thiel, who was co founder and former CEO of PayPal, taught a course at Stanford to help college students think about their futures, Blake Masters, one of his students, was taking notes. Those notes were circulated on the Internet and went viral, reaching hundreds of thousands of readers. Thiel and Masters recently sat down and adapted the notes into a book that was just published: Zero to One: Notes on Startups, or How to Build the Future.

Wharton management professor Adam M. In this interview, Thiel shares the insights he has gained as an entrepreneur and investor.

Peter Thiel: Is for Losers was the headline of The Wall Street Journal excerpt of our book. The chapter title [of the excerpt] in the book says, Happy Companies Are Different, so it was a slightly milder form of that You always think competition is for winners, and a winner is someone who is better at competing and is more intense at competing. It like you are on a high school sports team, and you learn to compete against the people you are up against, and the really talented people are the ones who compete the best. But what happens when you compete is you are always just focusing on the people around you, on the people already doing what is deemed valuable by other people. You often lose sight of building things that are one of a kind, different and truly valuable. The next Bill Gates will not start an operating system. The next Larry Page won start a search engine. The next Mark Zuckerberg won start a social network company. If you are copying these people, you are not learning from them. If you are competing against these people, or you think you are competing with these people, you are actually trying to copy them, and again, you are not learning from them.

Grant: On the flip side of that, you then argue we should think about a monopoly as a good thing. Why?

Thiel: From the point of view of a founder or entrepreneur, you want your company to always be a monopoly. You want to be offering something to the world that no one else is offering and, therefore, you have some really healthy profit margins around your business. From the inside, I would argue monopoly is always a good thing. That what every entrepreneur should attempt to build.

happens when you compete is you are always just focusing on the people around you, on the people already doing what is deemed valuable by other people. You often lose sight of building things that are one of a kind, different, truly valuable. the point of view of society as a whole, monopolies deserve their bad reputation when things are static. It like the Parker Brothers board game [Monopoly], where you just reshuffle the deeds, or it like the post office or something where the monopoly is just a rent collector or a toll collector, that bad. But when it is something dynamic like Apple building the first smartphone that worked and people lining up around the block to buy it, that is a monopoly that does not create artificial scarcity. It is creating something new and doing something that is good for society as well.

Grant: If you put these ideas together, is the suggestion then that Mark Zuckerberg shouldn have started Facebook given that Friendster and MySpace were already out there? Or that Larry Page and Sergey Brin had AltaVista and Ask Jeeves and others to compete with, so Google shouldn have existed?

Thiel: It certainly is always a question: What dimension is really new and really different? I would argue that with Google and the search business it was the page rank algorithm. It was a way to automate search and computerize in a way that was quite new and that fundamentally transformed search into this vastly bigger space than anyone had thought it was in the pre Google 1990s.

In a similar way, I would say Facebook was the first one to really crack the code on making personal identity real. One of my friends, Reid Hoffman, who went on to start LinkedIn, had started a company called SocialNet in the 1990s. They already had social networking in the name. Their model was that we would have these avatars on the Internet maybe I would be a dog and you would be a cat and then we would have these questions: would we get along with each other? There were all these virtual world, simulated reality, social networking plays, but they were fundamentally about people being different from who they really were. Facebook was the first wholesale cheap nfl jerseys one to really capture real identity. Sometimes companies are iterations on things where there is just a fundamental breakthrough in one really key dimension.

Grant: Tell me a little bit about why you think software has been so lucrative and why we have seen so much progress in digital technology recently.

Thiel: There are a lot of reasons for this, but [in] the last 40 50 years, we have had enormous innovation in the world of bits, and somewhat less in the world of atoms: clean tech, energy, more generally, transportation, biomedical. A lot of these others have seemed to have been a lot tougher. One of the things that I think is true of any great company is you have to build something that is valuable to the world and you have to capture some fraction of what you create. So you have to create X dollars in value, and you have to get Y percent of X. X and Y are totally independent variables. In most cases, Y is about zero percent. This is a disturbing element in the history of innovation: A lot of innovators discovered things, but weren able to get anything. [Nikola] Tesla was out competed by [Thomas] Edison, even though Edison had an inferior technology. The Wright brothers came up with the first airplane, but they didn get to be rich. Of course, in the sciences, it tends to be even worse. If you are [Albert] Einstein, you come up with general relativity. You don get to be a billionaire; you don even get to be a millionaire.

It always this question of how do you actually capture some of the value of what you create. There is something very unusual about software businesses where so many of them have this monopoly like character that enables people to capture a tremendous amount of value. That a very underexplored dimension of it. The marginal cost of producing software is zero. So you have these incredible economies of scale. That a classic monopoly, a natural monopoly business.

Grant: It really interesting. It makes me wonder what going to come next. If you think 20, 30, 50 years down the road, is there going to be a next digital revolution? And where will that be?

Thiel: It a fairly safe bet that the digital revolution just keeps going. It has been going for 40 50 years. But I think in the space broadly is a very good place to look. While we have constantly explored looking at all sorts of other technological verticals space, biotech, genomics, energy the bulk of our focus is still on software for this reason.

Grant: Let talk about the people behind the software. One of my favorite comments in Zero to One was that you don really trust a tech CEO wearing a suit.

Thiel: Well, that was in the context of a lot of the clean tech companies in the 1990s where you had these sorts of people they had a certain look to them, and again, it always fact specific. There are no hard and fast sartorial rules. But in Silicon Valley if you were wearing a suit in a pitch meeting, it looked like you were bad at sales and worse at tech. It had that very specific meaning.

next Bill Gates will not start an operating system. The next Larry Page won start a search engine. The next Mark Zuckerberg won start a social network company. If you are copying these people, you are not learning from them. Really interesting. So you wouldn make a broader statement that we should just leave suits out of business altogether?

Thiel: It depends totally on the context. These things are always, always very context specific. One of the papal rules that I find to be very true is that these companies often work well if the people have known each other for a long time or there some good prehistory. Whenever I talk to people who founded a company, I often like to ask the prehistory questions, did you meet? How long have you been working wholesale jerseys china before you started the company? A bad answer is, met at a networking event a week ago, and we started a company because we both want to be entrepreneurs. A good answer is, were in college together for four or five years working on this, thinking about this. I more on the business side. The other person is more on the tech side, or something like that.

Grant: This was one of the secrets behind PayPal. Did you know back then that it was so critical to start a company with people who you knew cheap nfl jerseys well and trusted?

Thiel: I don think you need to know all of them super well. But it certainly helps because you know what people strengths are, you know what people weaknesses are. You can be somewhat more honest in conversations you have with people. You have all these cheap jerseys crazy ups and downs in these businesses, and you don want things to blow apart on one of the lows.

Grant: You also make a statement that you are not a lottery ticket. What is that about?

Thiel: Well, it always a very important question in business: What is the role of chance? And how much is everything just a matter of luck one way or the other? It a very hard question to answer because we can never run this experiment twice As a venture capitalist, when I invested in businesses, if I treat them as lottery tickets, where I don know if this is going to work maybe it works, maybe it won I give them some money. Once you do that a bunch of times, you already psych yourself into losing money. I found that I do much better when I have really high conviction and am willing to put a lot of capital behind an idea. Whereas when I saying that it a lottery ticket, what often is really going on is that I actually too lazy to really think about what some of the strengths and weaknesses of a given business are.

Even though there is such a thing as luck, and it quite important in some ways, I think we exaggerate its importance. Often when we use the word luck, we should instead just be thinking a little bit harder.

Grant: If you think that you been lazy, the rest of us have a lot to worry about by comparison. But if you think about this idea of luck, in the book you actually say, in a way you are playing a lottery ticket because on average the most successful investment in a fund will outperform the rest of the funds. How do you reconcile that with the lottery idea?

Thiel: That not so much a lottery ticket as it is that you do have these very extreme outcomes where some of these companies end up being vastly more successful than others. There this very unequal distribution. Not all companies are created equal, and they are more unequal than our intuitions about this often are. The lottery ticket part is, the company going to do well? Will it work, or will it fail? There are some companies that do reasonably well. Some do a lot better than others. As long as they all succeed, that fine as an investor. But I think it also important to keep in mind that some do a lot better than others. This changes one thinking in a lot of ways.

For example, you would have been better off as the 100th person at Google than the CEO founder of most venture backed startups in Silicon Valley. It possible because these outcomes are so wildly uneven that we slightly overvalue people starting companies, and we undervalue asking if there is a really valuable company you should try to join instead? Talk to us a little bit about how you think about when you want to actually be involved as a founder versus an investor. I thinking of Palantir as an example, which many people know now as a killer app that is being used to fight terrorism. There, you co founded. In other cases, you have invested in taking a little bit more of a backseat role. When do you decide to jump in in full?

don believe that there a one size fits all approach. I don think everyone should go to college. I don think everyone should drop out of college and start a company. I mostly work as an investor these days. In Palantir, I chairman, which is board level involvement, but not day to day, showing up at the office every single day, working in some operational managerial capacity. In most cases, you are either all in or not. It not really possible to do these companies part time. As an investor, you always have to have a certain sense of humility that once you write that check you only have very limited control over what you can do. So you have to think really hard when you write those checks.Articles Connexes:

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