PETER THIEL is one of the biggest names in Silicon Valley. The former Paypal co-founder is a serial investor & was an early-stage investor in Facebook, Tesla, Airbnb & Youtube among many others. No. 4 on Forbes's 2014 Midas List, it seems that everything this man touches turns to gold. In his book Zero to One, he poses 7 questions every startup needs to ask in order to be successful.
Originally a Stanford educated lawyer, Thiel soon quit his job describing it as "lacking meaning" & feeling like "Alcatraz". He would go on to found Paypal in 1999, merge it with Elon Musk's X.com in 2000 and sell it off to eBay for 1.5 Billion two years later.
In 2005, he created Founder's Fund, a VC fund with investments in Linkedin, Spotify, SpaceX, Stripe, etc. He is currently CEO & Founder of Palantir, a Big Data Analytics company with applications in fraud detection, counter-terrorism, predictive policing and so much more!
He is popularly referred to as the "Don of the Paypal Mafia" - a group of former Paypal employees who went on to found other companies. This group includes the likes of Elon Musk( the current richest man in the world), Reid Hoffman (Founder of Linkedin)and Jawed Karim (Yoube founder) among many others. The companies they have founded so far include Tesla, Inc., LinkedIn, Palantir Technologies, SpaceX, Affirm, Slide, Kiva, YouTube, Yelp, and Yammer, you can read more on their ventures here.
Below are 7 questions "The Don" thinks every startup should ask in order to succeed
1) ENGINEERING QUESTION
Can you create breakthrough technology instead of incremental improvements? For a product to be an innovation, it needs to be 10 times better than what's currently available. This is the only true way to gain a considerable competitive advantage.
"A Great technology company should have proprietary technology in order of magnitude better than its nearest substitute". Google's search algorithm is way better than its nearest competitor, because of that it enjoys a clear monopoly. Amazon leads the e-commerce market in part due to its powerful and proprietary recommendation engine which keeps the customers buying more.
Thiel famously remarks, "Customers won’t care about any particular technology unless it solves a particular problem in a superior way." While an incremental improvement is better, only a 10x improvement is likely to differentiate you from the competition and give you a clear competitive advantage.
2) TIMING QUESTION
Is now the right time to start your business? Timing is very important to the success of a business. Microsoft launched tablets in 2000 yet failed to get any significant adoption. Apple launched the iPad 10 years later & stole the show, hitting overnight success and taking a huge chunk of the market.
Another example of timing is the field of Artificial Intelligence, this field was first founded in 1956, yet most of its applications and adoption started in the mid to late 2000s as computers' processing speed started getting faster. Today Artificial Intelligence is everywhere & every single digital device seems to be getting smarter.
3) MONOPOLY QUESTION
Are you starting with a big share of a small market? Thiel is famously attributed with the quote "Competition is for losers". He strongly believes monopolies are good and competition is bad. Competition means little profits & a huge struggle for survival, he adds “Monopoly is the condition of every successful business.”
Since Monopolies dominate a market, they enjoy better profits, with profits they can afford to invest in R&D and work on radical solutions without constantly feeling pressure from their competition. To achieve this Thiel advocates for startups to start by capturing a huge share of a small market & then expanding, as opposed to entering a huge market that is likely already saturated with competition.
4) PEOPLE QUESTION
Do you have the right team? Any business is only as good as its people. In Zero to One, Thiel gives the example of Cleantech, a renewable energy company compared which had its executives in suits & ties pitching in meeting instead of engineers in jeans & tees.
He highlights that this is a red flag because while these salesman executives were good at raising capital & securing government subsidies, they were less good at building actual products that users would buy. As a rule, Thiel would pass on any founders who "dressed up" to pitch
5) DISTRIBUTION QUESTION
Do you have a way to not just create but deliver your product? "Selling and delivering a product is at least as important as the product itself". For any product to get mass adoption, you need to have an effective distribution channel.
“You’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.” In Zero to One, Thiel tells the story of Better Place, an electric vehicle startup that had great technology but failed to sell it to the customer. The company went on to declare bankruptcy after selling only 1,000 cars.
6) DURABILITY QUESTION
Will your market position be defensible 10 and 20 years into the future? It is very important that your business has a future plan & is actively working to dominate the market. An important question to ask is "What will stop the competition from wiping out my business"
Thiel remarks, “Most of a tech company’s value will come at least 10 to 15 years in the future.” and to illustrate this further, Thiel stresses the importance of future cash flows. Facebook was valued at over a billion dollars before it even sold a single ad. It later bought Whatsapp for 21.8 billion even though the company wasn't making any money.
WHY? -> FUTURE CASHFLOW!!!
7) SECRET QUESTION
Have you identified a unique opportunity that others don't see? The best business opportunities are the ones others haven't realised yet: SECRETS. Thiel believes that "Great companies have secrets: specific reasons for success that other people don’t see."
To illustrate this, Peter Thiel often asks new hires his favourite question- "What important truth do very few people agree with you on?“ This contrarian take on the world helps spot interesting opportunities in the world that are often overlooked.
He goes on to add, “The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.”
That's it folks if your business is good enough to answer all 7 questions then you'll likely have a great chance for success. If not, it might be a great time to introspect and work towards fixing those dynamics. I'll end this post, with my favourite quote from the book :)
“Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.”