Lateral Capital Management, LLC

Thiel’s Advice on Being an Entrepreneur

Peter Thiel is one of the founders of the payment company, PayPal. Based on his experience beginning with Early Stage companies in the age of the internet, Thiel taught a course at Stanford to teach potential entrepreneurs how to start a new business that has a better than average chance of survival. His book, Zero to One, is written in large part, from the learning of that class. Here is a summary of a few of the points he made:

  • Aim for a Monopoly – The most profitable businesses control market pricing. To do this, they start with a small market. EBay started by “owning” the market for collections of Beanie Babies and PEZ dispensers. The rest is history. But the cleantech bubble during the early 2000s? The idea put forward by most startups said that since this is such a big market, you can’t fail – even with a small idea. Very few of those players were ever successful.
  • This works in the startup world. For example, it was obvious to entrepreneurs and venture capitalists that a professional networking service like LinkedIn should exist. LinkedIn is a network that becomes valuable as more people join the network. So LinkedIn is not particularly useful to the initial group of users. What was not obvious was how to kickstart the network so it could get to a critical mass of one million users. Reid Hoffman, LinkedIn’s founder, had a special distribution plan to meet this goal. In this way, it can be said that LinkedIn’s distribution and growth plan was its secret. LinkedIn is a monopoly in the professional networking space today; valued at billions of dollars.But they also have to protect their business from themselves. A founder must weather an incredible number of changes, and do it with their public persona intact. They have to avoid tarnishing their company’s brand because of his or her personal problems. Let’s remember that Steve Jobs, co-founder of Apple, was a genius with lots of personal problems. Jobs had a daughter he refused to acknowledge as his own until she was an adult. Only one of many erratic behaviors Jobs displayed in his lifetime, his behaviors became public and had a huge impact on Apple, both positive and negative. A successful startup founder will learn a lesson from Jobs’ successes and failures, as well as those of other unique, charismatic founders, and become the type of founder who can be successful both in business and in society.The net of all this: Thiel’s view of the path to success is based on what has worked for him and the people he has observed. But like everyone, his view is shaped by the color of the lens through which he sees the world. Like the EPA always says about automobile fuel mileage, your mileage may differ!
  • Entrepreneurs Are Their Own Brand – Successful startups are run by individuals who are both unique and unusual. Entrepreneurs are simultaneously insiders and outsiders. They have drive, self-reliance, patience, high energy, flexibility, and focus as well as the willingness to fail before finding success and an ability to set realistic goals.
  • Durability Counts – First mover isn’t everything and you can’t just get out there with a small improvement and say this should be the basis for a company. What you launch has to be a big enough improvement to be notable, durable, and sustainable in the industry.
  • Keep Your Secrets – Companies of value have knowledge of a secret. It is something that is unknown and important as well as difficult but doable. Most people don’t believe valuable secrets exist because they think everything worth finding has already been found – on the internet! However, all advances in technology and social progress were once secrets. The telegraph, the telephone, the television, and the combustion engine were once secrets. Newton’s Three Laws of Motion were a secret and so was Georges Lemaître’s Big Bang Theory of Creationism. The General Theory of Relativity was always there, but it was a secret before Einstein reduced it to practice. To not believe in secrets is to have a pessimistic view of the world.