Peter Thiel – the Ultimate Enigma- at Commonwealth Club Event

Peter Thiel, co-founder of PayPal, VC/hedge fund manager and author of Zero to One, was interviewed by NY Times’ Quentin Hardy on Sept 30, 2014 at the Commonwealth Club of Silicon Valley event in Santa Clara, CA.   While I agreed with several things Mr. Thiel said, he seems to be a man of many contradictions.  Hardy said that Thiel “very richly embraces intellectual curiosity and combat.”   But who is he fighting- himself?

For example, Thiel is a steadfast libertarian.  But he relishes bygone eras of government-funded moon shots and super-highways.  He’s a free market capitalist, but loves monopolies and disdains competition, while championing risk taking and bold thinking entrepreneurs.

Thiel says that the best businesses are monopolies, because they have profit power. With competition, businesses are forced to compete with many rivals and therefore end up with smaller profits.  Yet he is strongly in favor of “big idea” entrepreneurs, risk taking, and innovation.  He believes in taking risks to not only build wealth, but to build courage, rekindle yourself, and have larger visions of what society might become.

OK, how can such entrepreneurs flourish if there’s no competition?  Answer:  They must create totally new markets and take a commanding share.

Successful companies are built upon rare insights, which he dubs “secrets,” that most outsiders don’t appreciate.   Such secrets lead to the creation of totally new markets, where the start-up can grab a significant market share.   The successful entrepreneur should attempt to do something that no one else has ever done before- like building a “flying car.”  Copying a Facebook, Twitter or Google – or even doing an add on- is a huge mistake, according to Thiel.  He highlighted his investment in SpaceX as an example of a totally new market- space transportation in the form of launch vehicles and spacecraft.  While it was very unpopular among his VC fund investors and potential investors, it’s turned out very well, he said.

Hardy:  “How would you answer this question: What do I believe that everyone else thinks is true?”

Thiel:  “People need the courage component.   A good answer is the one the person asking the question won’t agree with.  People have some answers they don’t want to share.”

Here’s an eye opener from Thiel:  “Competition and capitalism are antonyms (opposites) not synonyms.”   The impression left was that competition is bad, but capitalism is good.  Thiel sees the intense competitiveness often associated with entrepreneurship as more of a burden than an asset.   He related his own experiences:

“When I look back on my younger self, I was extremely competitive….(graduating early from Stanford with a Law Degree; going to work for a prestigious Wall Street law firm, etc)…..when you’re very competitive, you get good at the thing you’re competing with people on, but it comes at the expense of many other things……..I think every day it’s something to reflect on and think about how do I become less competitive in order that I become more successful?”

Thiel on monopolies:

“Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better,” he writes in his Zero to One book. It’s a lesson he believes companies as well as individuals should follow if they truly want to push society forward.

Google is a monopoly, according to Thiel (and most people).  The company hasn’t competed in the search business since it significantly surpassed Microsoft, Yahoo and Alta Vista in the late early 2000s.   It was like Google had “sub-machine guns while its search rivals had bows and arrows,” he said.

Thiel is not impressed with our technology age and thinks we’re deeply lacking in vision.  His asserts that outside of computing and information technology (IT), we’ve not had a lot of innovation in “the world of atoms” over the last 40 years.  Examples cited of areas with little innovation were: energy, transportation, and bio-medical.  Many other areas have been relatively stagnant over the last 40 years, he added.

Author’s Note:  Thiel neglects or doesn’t realize that the great progress he cites for computing, storage and the mobile Internet are all driven by making components and modules.  IT progress has been due to the advances in material science, physics, chemistry and semiconductor fabrication, rather than new IT architectures or systems design.  So there really has been tremendous progress in “atoms” (making things), that has given rise to advances in IT!

Thiel says there’s hope that the world of information technology will be integrated into the world of atoms.  We could be doing a lot more in bio-tech and life sciences, he said.  For example, it would be desirable for people to live longer and healthier lives.  “There’s hope that we can make somewhat more progress on fighting cancer and dementia,” he added.

Thiel says the negativity we have about the future now is greater than we had 40 – 50 years ago.   Star Trek and the Jetsons were optimistic shows.  They clearly belong to a bygone era.

Hardy asked: You have challenged the education system.  Is it preparing people for the future?”

Thiel:  “It’s no longer controversial to say we’re in an education bubble.”

Comments on a Tech Crunch article where Thiel was quoted on education:

“There’s too much student debt, people aren’t really learning real world things.  The education bubble kept going, because we (universities and students) had no idea what else to do.  People had deep misgivings.  Costs (tuition) have gone up 400% since 1980.  There’s a trillion dollars of student debt in the U.S.  (Repeat) It keeps going because people don’t know what else to do.”

As far as getting VC funding, Thiel said, “Sales pitches don’t really matter that much at all.  Team questions and the history of the team are much more important.  Convictions are also very important. Without them, you’ll get lost.”

On Steve Jobs and leadership:

“Steve Jobs inspired people and that’s why Apple succeeded,” Thiel opined.  “At what point do companies mature?  You want to have a visionary, charismatic founder as long as you’re building new things.” he added.  Apple’s focus on brand (PC) in 1985 was wrong.  There was lots of innovation possible in 1997, when Apple’s Board of Directors brought back Steve Jobs to run Apple. (Jobs certainly proved that by re-inventing the PC, music, cell phone businesses and creating the tablet computer market.)

Biology is an area that Thiel is interested in for future investments.  However, he says that “science driven companies tend to be catastrophic on the business side.  They are delusional by thinking science will sell itself and the world will beat a path to your doorstep.  For hard-core science companies, it’s far more critical to have a strong business person on the staff.”

Hardy:  “Viral growth is tied to product excellence, which deeply reflects the company’s vision of how the world ought to be. That resonates with other people.  Google is an example of that (for Internet search).  They didn’t advertise for years, except in ways that were very attractive to hard-core engineers. It reinforced the engineering driven aspect of the company.”

Thiel:  “The (sales) distribution question is incredibly hard.  If you build it will they come?  How do you get people excited about your product?  Sales work best when advertisements are hidden. Mass posters on billboards for engineering positions at your company, might be far more effective than Super Bowl ads.  You want to maintain (your company’s) focus on substance.”

On the relevance of a mentor for an entrepreneur:  “I’m a bit skeptical of mentors.  Not sure how ‘well-defined’ mentors are for successful entrepreneurs.  Great friendships, certain people you learn various things are important.  If you are trying to copy a mentor, you’re not learning from him or her.  We’re too often looking for a scientific formula to build a successful company.  There really isn’t one.”

Hardy:  “What areas or fields are ripe for disruption?”

Thiel:  “I’m always skeptical of the theme of (product or service) categories that are poorly defined:  education software, health care IT, cloud computing, big data – which I think are borderline fraudulent themes; or fast computing, mobile Internet.  Those are (also) poorly defined.  When you end up doing them, you’re doing things that other people are also doing.”  In other words, it’s pretty hard to explain what your value add is for poorly defined markets.  That makes it very difficult to differentiate your company from the many others in that same category.

For a broken company:  “Fix what you do really well. The Internet has disrupted the business model for print newspapers.  The NY Times had a great monopoly for many years.  How do you get back to a monopoly.  The NY Times is doing it mostly correctly by leveraging the brand with its aim to become the establishment newspaper for the United States.”

Hardy:  “Are you still encouraging kids (think he meant college students) to drop out of school (and become entrepreneurs)?”

Thiel:  “I’m encouraging people to think.  There’s nothing wrong with education, but it’s always worth asking “why are you doing this.”  (One should) never use education as a substitute for thinking about what you’re going to do with your future….If we think of our lives as endlessly option generating as a way of avoiding thinking in concrete terms, it’s not the best way to do it.”

Hardy:  “How to prepare for the world involves luck.  How much of your own outcome to you ascribe to luck?”

Thiel: “The politically correct answer:  There’s a huge amount of luck involved.  But it’s very hard to know.  You can’t run the experiment twice.  It’s very hard to figure out how much luck is involved. My own contrarian bias is to push back a bit on how much of one’s success is due to luck. When we attribute something to luck, are we actually making a statement of the deep nature of reality or are we too lazy to think about things right now?  It’s as if luck is an atheistic word for God.  I’m more interested in what we can do about the future and if that is dominated by luck.  I always think its best to push back again on luck.  We can’t do anything about the past; what can we do about the future is important question. How much of that is within our control vs random chance?”

Hardy:  “As globalization continues, will there be more opportunity in developing countries like China, or less opportunity?

Thiel:  “There will be more opportunity in China (he shares the conventional view this time). There might not be much more opportunity for the technology sector in China (very unconventional view, considering the advances Chinese companies have made in network equipment, PCs, and smart phones).  globalization is copying things that work – going from 1 to n- extensive horizontal growth.  China still has done a phenomenal job of that, but there’s a lot of room left for that.”

“In the developed world, technology is critical.  We need to go from zero to one to do new things. Vertical and intensive progress is (urgently) needed.”

“Technology and globalization are different things…(historical evidence was then presented over the last 200 years).  Over the last 40 years we’ve had massive globalization, but (outside of computers) more limited progress in technology….. ”

“There’s now an anti-technology dichotomy.  When we say we’re living in the developed world, we’re implicitly saying we’re living in that part of the world that’s finished, done, where nothing new is going to happen, stagnant, etc.   That’s wrong. We should not accept that label.  Instead, we should ask how we can take steps to further develop the developing world.”

Theil ended the provocative conversation by wishing the audience “more than good luck.”


0 thoughts on “Peter Thiel – the Ultimate Enigma- at Commonwealth Club Event

  1. Alan, this is an excellent writeup on the CC event; I would have to rate this among your best.

    You are spot on in your comment “…IT progress has been due to the advances in material science, physics, chemistry and semiconductor fabrication, rather than new IT architectures or systems design…” This is what a non-tech IT person misses most of the time. They take hardware and technologies that enables everything connected and computing-capable for granted. The real danger is that this category of people also do not know how best to fully utilize the features technology offers in IT application.

    I was also intrigued by the speaker’s comment “…education software, health care IT, cloud computing, big data – which I think are borderline fraudulent themes…” which is partially true! It is perhaps some overzealous IT businesses that are led by marketing-first than technology-first strategy that give this impression to even a seasoned technologist like myself.

    Keep up your excellent work!

    1. Thanks MP. Yes, there were several very controversial comments Thiel made that I agreed with- like the ultra hyped markets being “borderline fraudulent schemes.” However, I don’t agree with his assertion that we are in an “education bubble.” Also, the idea that start-ups can establish entirely new markets that they can dominate is an incredibly risky proposition!

  2. Anonymous comment from an IEEE member of the IEEE email discussion group:
    Peter Thiel has certainly made his bones as an investor and as such it’s good to listen to him. It doesn’t mean he is godlike, and I personally find Bill Gates’ ideas quite unimaginative on business. Nit picking Thiel in the current context misses the valuable ideas he generates to stimulate creative thinking.
    This interview and a recent article in WSJ are consistent in showing how he creatively thinks about innovation and business. To find various inconsistencies in his quotes in the context of business is silly. When he says he is against competition, that’s just a rhetorical ploy to focus attention. Google of course has Bing, and the society supports rivalries, so there is competition in the legalistic sense, but really, GOOG just dominates “as a “monopoly”. If I say I prefer liberty to security, it doesn’t mean I want anarchy or to relinquish my right to self-defense.
    Net bottom line: I loved this interview summary and wish I’d been there!

  3. Yes, I agree with the comment above that I wish I had been there, but your excellent article provides a picture of what the evening must have been like.

    It must have been very entertaining, as his viewpoints are unique and strong. Some good food for thought and reminds me that I want to read his book to learn more. Thanks.

    I am sure there are many people who would take issue about his comments regarding the lack of “break-throughs” in the energy field. It’s easy for Silicon Valley to overlook the impact that fracking, combined with horizontal drilling is having on the price of energy and global politics. This effort, led by entrepreneurs, is transforming regional economies where it is occuring and changing the cost of an important input, allowing it to be cost-effective to manufacture in the U.S. again.

  4. WSJ Editorial: Competition Is for Losers
    If you want to create and capture lasting value, look to build a monopoly, writes Peter Thiel. Here’s an excerpt:
    “Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away. The lesson for entrepreneurs is clear: If you want to create and capture lasting value, don’t build an undifferentiated commodity business.”

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