Billionaire entrepreneur, investor and intellectual Peter Thiel visited HBS on September 19 and Steve Hind had front row seats for his conversation, which was hosted by the Rock Centre for Entrepreneurship.
Peter Thiel pays people not to go to university. And yet the billionaire founder of PayPal and early investor in Facebook found himself at HBS on Thursday September 18 talking to a room full of people who hadn’t followed his advice.
The reason? These days Thiel is as much a public intellectual as he is anything else. And more specifically that means he’s written and is promoting a book, Zero to One.
Over the course of an hour and a half-long conversation hosted by HBS’ Rock Centre for Entrepreneurship, Thiel talked about the central thesis of Zero to One before branching out to discuss entrepreneurship, the economy, progress and the future of education. The highlights are below.
- Startups should seek to quickly dominate a small market, rather than launch themselves into a large one. When Thiel met with Facebook, as a potential investor in the summer of 2004, they had already achieved over 60% penetration in over 20 colleges. That, to Thiel, was the strongest signal about the company.
- The first red flag in a company’s pitch deck is the claim that their market is measured in hundreds of billions of dollars. This over-broad market focus was the problem with cleantech startups because if you’re a minnow in a huge ocean, you have no idea what to do.
- It is better to have founders who are pretty bad at business than professional CEOs who lack vision. Google will be stronger with Larry Page back at the helm than they were under Eric Schmidt.
- The ‘failure in startups is good’ meme is wrong. Every failure is a tragedy and is not beautiful or educational – these are preposterous myths that people tell themselves. The problem with failure is there are usually multiple reasons for it, but it is hard for founders to see all of them. So if they make five mistakes, and learn not to make mistakes one and two again, they will still make mistakes three through five and fail again.
- Working for a company that finds it difficult to have success is much better preparation for a startup than working for a company that finds it easy. Thiel is skeptical of ex-Google founders because Google’s core business model is so magical that building the business has never been that hard. He contrasts this with PayPal (which he founded) prior to its acquisition by eBay in 2002. The 200 or so staff who worked at the company to that point have gone on to found seven companies that are worth a billion dollars or more. Thiel attributes this to the fact that PayPal showed that it was possible but hard to build a great company.
- Thiel likes to meet founding teams who’ve been working together and thinking about a problem for a while. The worst answer to being asked “Where did you meet?” is “At a networking event last week”.
On competition, innovation and progress
- Competition and capitalism are diametrically opposed forces. Capitalism is about the accumulation of capital via the erection of barriers to competition. Competition is about competing away excess profits / capital.
- Monopolies, however, are good when they create new things and bad when they become rent collectors. As long as there is enough dynamism in the economy, they tend to do more good than harm.
- While all tech companies have branding that is about innovation, many of the biggest firms are no longer innovative. An investment in Microsoft today is a bet against innovation. Indeed most of the companies in the NASDAQ 100 are bets against innovation. Companies themselves are slow to admit this. IBM still portrays itself as a tech company but hasn’t been one since the 1970s.
- Investors tend to undervalue things that are different to what we use or see. All of the fundamentals suggest AirBnB is a better business than Uber, but VCs like black towncars and dislike couch surfing, so Uber has a higher valuation.
- Tech innovation is not a threat to middle class jobs. Improvements in the standard of living were build on tech innovation, but that innovation has stalled.
- There are not enough massive technological breakthrough today. One under-explored modality for innovation is complex coordination. What’s needed are accounting skills, to figure out how much things show cost and to bring together complex supply chains. This is the core of Elon Musk’s work with Tesla and SpaceX.
On HBS and the future of education
- Top schools like HBS won’t be threatened by MOOCs for quite some time. They are dominating the tournament economics of higher education and the rest of the schools aren’t. This all assumes the purpose is signalling – none of this is about learning.
- Whichever company the largest number of HBS grads go to in a given year is the wrong place to go. Every is trying to catch the last wave. You have to be out there paddling for the next wave that’s going to come.
- Improving K-12 education is mainly about doing things that we already know work. We should push charter schools and school vouchers very hard and avoid monolithic systems.
- People should start learning computer programming from junior high onwards.
- Education isn’t doing a good job of teaching people to work well in teams, which is the main driver of success in entrepreneurial ventures. Entrepreneurship isn’t a sport where there are clear rules, goals and team roles, like there are in educational group work activities. Those activities are less intense and people tend to work less hard.