Thursday, October 16, 2014

What you can learn about starting a business from Paypal Co-founder Peter Thiel

Five ideas from the forthcoming book by Paypal co-founder Peter Thiel These were extracted from an article in the Puget Sound Business Journal by reporter Teresa Novellino.

Next time you think you have a big idea to start a new business keep these 5 ideas in mind.

1. Don't be a copycat

Part of knowing what type of business to go into is knowing which types to avoid. In Thiel's estimation, business ventures in areas in which great ideas and innovations have already taken place are finished.
“All of the great innovations in business and technology happen once," Thiel said.
That's why the “next Mark Zuckerberg," for example, won't be building a social network. While Facebook built and dominated in social media, companies like Airbnb and eBay did the same in their markets, so he said better to stay away.
“I basically focus on the question of what great companies nobody has started," Thiel said.
He's especially fond of people whose ideas sound crazy to most people, like those of his PayPal co-founder, Elon Musk, who is determined to see humans live on Mars in his lifetime and has said that he personally wants to die on Mars, “just not on impact."
One of Thiel's favorite questions for entrepreneurs: “Tell me something that's true that almost nobody agrees with you on." As a “contrarian investor" who started the Founders Fund in San Francisco, Thiel doesn't want to pile onto the same company as other venture capital firms, but seeks out the markets that no one else is investing in. The classic example: He was an early investor in Facebook, which was ignored at the time by Boston VCs.


2. Win at monopoly

“The wisdom of the crowd" has some budding entrepreneurs moving into areas where the competition is steep, assuming that their idea will win and that capitalism and competition go hand in hand. Thiel said they do not.
“The goal of every entrepreneur who starts a company is to create and build a new monopoly," Thiel said. “If you want to have a successful company, you should have a monopoly."

The example he gives is Google, with its lock on search.
“A company like Google is extremely capitalistic, and it's had no real competition in search since it definitively distanced itself from Yahoo and Microsoft," he said.
While Google can also point to other businesses like its Android platform, self-driving cars, Google Glass and more, he suggests these are ways to make its core business and market seem more diverse and its company less a monopoly than it actually is. He suggested companies that are actually monopolies deny that they are, while companies that are not monopolies do the opposite, insisting that they have no competitors.


3. Small markets rule

While the above advice might sound like an indication to go after larger markets, Thiel said he likes to see startups go after smaller markets. Monopoly just means having the greatest market share in any given market.
“Either have a technology advantage that's big enough that people can't copy it, or have some distribution plan that you scale rapidly," Thiel said.


4. Pursue secrets

Thiel likens starting a business to discovering a secret, but to do so you have to believe that secrets still exist.“You have conventional things that everyone understands, mysteries that no one does, and secrets that people try to figure it out," Thiel said. A common and disheartening mistake is to think “there are no secrets left, everything has been found." Those who believe there are secrets are those “who will look for things to discover and will find them. And the people who don't, wont' even try. That's at the core of what drives many of these startups."


5. Work with friends or potential ones

Considered the “don" of the PayPal mafia, Thiel said he and co-founder Max Levchin assembled a group of other co-founders who knew each other either from Stanford or the University of Illinois. Their idea was to create a company “where some incredibly strong friendships were formed." They hired not necessarily only friends, but people “we thought we could be friends with."
The reason? To avoid the sort of cut-throat competitive atmosphere Thiel experienced when he worked for a New York law firm for less than a year.
“One of the things I didn't like was all the people around me were structurally hostile. Of the 80 people who came in, only five would make partner," he recalled. “Way before the external competitors destroy you, it's the internal people that don't get along," he said.
By contrast the PayPal founding team, had “a good prehistory," plus an idea they had been "thinking about for a long time.