Entrepreneur Thiel shares elements behind his success

December 8, 2014 Columnists 3068 Views
Entrepreneur Thiel shares elements behind his success

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Book Review

By Leslee Kulba- In his book Zero to One, Peter Thiel has identified at least one good reason why the abstraction known as the economy is sagging and hobbling. Thiel is co-founder of PayPal and an investor in numerous startups, including Facebook and SpaceX. Though only 47 years old, he is wise enough to know entrepreneurial success is not the result of following a prescription or copying best practices. Yet, he succumbed to pressure to share some ideas that have made him so successful.

Thiel doesn’t believe his success is due to probability and statistics requiring that somebody be on the winning tail of a Gaussian distribution. Rather, he tries to control circumstances as they’re presented, for the better, with intention. This, he contrasts to the general malaise of Baby Boomers. That generation was born, from a global perspective, with a silver spoon in its collective mouth. It was not a Renaissance era of invention, but an age where middle-class slackers could coast in 9-5 jobs, working for the man. But nature shows time and again that systems deprived of input have a way of stagnating and dying. The US economy was no different.

Thiel describes the phenomenon as “indefinite optimism.” Beginning right around 1982, America’s psyche shifted from driving inventors to engineer contraptions and infrastructure to improve the human condition, to metaphysically resolving things would always get better, regardless. Individuals, corporations, and governments expected they would profit from “the future.” Since everything was random, students at institutions of higher learning were told not to specialize, but to keep as many options open as possible, thus becoming jacks of all trades, and . . . .

Moving away from substance, people began to believe in an economy of credentials, certifications, and moving money around. Grant-writing and lawsuits could get better numbers on quarterly reports than tedious, risky R&D; and boards of directors took to lapping up glossies and PowerPoints more than caring if the corporate bottom line was trending toward a positive number.

“HP’s board was a microcosm of the dysfunction,” he writes. “It split into two factions, only one of which cared about new technology. That faction was led by Tom Perkins, an engineer who first came to HP in 1963 to run the company’s research division at the personal request of Bill Hewlett and Dave Packard. At 73 years old in 2005, Perkins may as well have been a time-traveling visitor from a bygone age of optimism: He thought the board should identify the most promising new technologies and then have HP build them. But Perkins’ faction lost out to its rival, led by Chairwoman Patricia Dunn. A banker by trade, Dunn argued that charting a plan for future technology was beyond the board’s competence. She thought the board should restrict itself to a night watchman’s role: Was everything proper in the accounting department? Were people following all the rules?”

The obvious “unintended consequence” that was scaring people like Thiel “out of their wits” was all the bubble-popping that followed. Thiel puts the phenomenon in a new frame. “Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble.”

Thiel rightly argues there is no magic bullet to jump-start the economy. But people wanting to risk being entrepreneurial have infinite options to try to improve their immediate sphere of influence. Contrary to notions promulgated by published philosophers, civilization has not peaked, and invention is not complete. In former days, entrepreneurs had wack ideas. When Henry Ford dreamed of making the horseless carriage widely available, his father asked, “What earthly good is it?”

Forty years ago, scholars traveled to libraries, searched the Dewey Decimal card catalog and Readers’ Guide, combed through indices, waited for interlibrary loans, assembled notes on index cards, broke fingernails on mechanical typewriters, and thought erasable onion-skin paper was the greatest of miracles. How many then envisioned today with PC’s being replaced by handheld devices? The next great wave of technology is surely as out-of-sight to people today.

But to get started, Thiel likes to get people thinking outside the box in which motivational speakers who ask people to think outside the box are stuck. As a warm-up exercise, he asks people what they believe that most other people don’t. Most startups fail, so it is OK to have a bad idea. But to have any chance of succeeding in the business world, Thiel says an idea must be a miracle. If it is to improve on existing technology it must be, loosely speaking, 10 times better than what’s already on the market, or it won’t be worth the investment.

The next step is to start small. Large corporations are never overnight successes. If, along the way, an entrepreneur finds he is doing the same thing and on a par with somebody else, Thiel says he should consider merging. Rather than viewing competition as motivating innovation, the author sees it only as friction wearing away at a corporation’s efficiency.

Thiel speaks somewhat on advertising, claiming geeks who suppose products will sell themselves are either deceiving themselves or supersalesmen delivering a subtle pitch. Good ideas often fail because proprietors undervalue the role of distribution in the market. Another undervalued element of a successful business is the ability of those involved to enjoy interacting with each other while achieving goals based on common values.

As a poster child of bad business decisions, Thiel holds up the renewable energy bubble. Most investors had no business plan. Some, like Solyndra, offered products worse than what was already on the market. He saw too many rosy PowerPoint presentations with plans of starting huge. “The ones that failed were run by shockingly nontechnical teams. These salesman-executives were good at raising capital and securing government subsidies, but they were less good at building products that customers wanted to buy.” Gobs of cleantech guys glutted the market with “undifferentiated” ideas; and none of them anticipated what fracking would do to for dinosaur technologies.

By way of contrast, Thiel says there are at least seven reasons why people as different as Steve Jobs and Bill Gates could repeatedly pull off huge successes.

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