Teleopathy March 2015
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Teleopathy March 2015 Simply stated, the value of a business today is the sum of all the money it will make in the future. Peter Thiel I’m reading Peter Thiel’s business best seller Zero to One. It was given to me as a holiday gift, as I am encountering more students and clients who hail from startup, technology-driven companies, and perhaps different generational ideals and values. The book is based on his Stanford Start Up course notes. I gladly accepted the book hoping to learn more. And I am. However, the book isn’t just a book about startups, it is a book about the motivation of a group of entrepreneurs and their start up economic philosophy. According to Forbes, Fortune and The Economist, Theil is an American entrepreneur, venture capitalist, and hedge fund manager. Thiel co-founded PayPal with Max Levchin and Elon Musk and served as its CEO. He also co-founded Palantir (the big data consultancy), of which he is chairman. He serves as president of Clarium Capital, a global macro hedge fund with $700 million in assets under management; a managing partner in Founders Fund, a venture capital fund with $2 billion in assets under management; is co-founder and investment committee chair of Mithril Capital Management; and co-founder and chairman of Valar Ventures. He was the first outside investor in Facebook, the popular social networking site, with a 10.2% stake acquired in 2004 for $500,000, and he sits on the company's board of directors. Thiel was ranked #293 on the Forbes 400 in 2011, with a net worth of $1.5 billion as of March 2012. He was ranked #4 on the Forbes Midas List of 2014 at $2.2 billion. Thiel puts forth ideas that are not particularity new or innovative. He makes a distinction between transformative, vertical change—going from zero to one—and incremental, horizontal change—going from one to n. “If you take one typewriter and build 100, you have made horizontal progress,” he explains in the book’s first chapter. “If you have a typewriter and build a word processor, you have made vertical progress.” This is pretty straight forward competitive thinking. Creating something new and having no competitors is gaining competitive advantage (monopoly) even if only a temporary monopoly. The author further explains that creative monopoly means new products that benefit everybody and sustainable profits for the creator, while competition means no profits for anybody, no meaningful differentiation, and a struggle for survival. There was something or nothing that lurked beneath the surface of this writing. I couldn’t put my finger on it at first. It was gnawing at me. The book isn’t a typical essay where it was easy to pin down the underlying economic philosophy: democratic, republican, socialist, Marxist or a hybrid European or emerging market economic philosophy. As I read the first chapters, I was sorting unconsciously through the various companies I have worked with, visited internationally and read about over the years. I was using search words like strategy, intent, value, stakeholder, customer, business model, competition and leadership. I was spinning and spinning through the data without coming to any conclusions. Thiel was using phrases like creative monopoly, commandments and ideology of competition, contrarian questions, monopoly capitalism and gigantic bureaucracies. Startups for him are about industry creating companies and products fueled by technology and leadership zeal. The leader’s strategic intent, industry recreation and revolutionary strategy have been covered by prior authors such as Prahalad and Hamel (Competing for the Future) and Kim and Mauborgne (Blue Ocean Strategy).Thiel’s book is about the future and competition. However, there was something else here—a different (for sure) and possibly new political and economic philosophy and message. I Googled him. Peter Thiel is a libertarian according to publications such as The Daily Beast as well as lesser known publications like the ValleyWag (a Gawker Media blog with gossip and news about Silicon Valley personalities). Technological advancement, Thiel believes, is the key to solving many of our most pressing concerns, and his most radical solutions seem to lie outside government. For instance, he’s funded both a floating island-city free of government regulation and a program that encourages entrepreneurial high schoolers to go into the startup world instead of college. Google, he claims, is a “good monopoly” because it keeps pumping out fresh ideas. Libertarianism is about less governmental involvement in business and maximum independence. The Economist equates Thiel’s philosophy to the robber barons who transformed America. In the 50 years between the end of the American civil war in 1865 and the outbreak of the World War I in 1914, a group of entrepreneurs spearheaded America’s transformation from an agricultural into an industrial society, built gigantic business empires and amassed huge fortunes. The author refers to Thiel and other technology billionaires as the silicon sultans rather than robber barons. He warns that barons/sultans create a very different America, divided by class and obsessed with money. He also takes us through the history of labor, social and environmental problems associated with this period in history. As I read about Thiel and different views of his economic philosophy, the faces of several students in their twenties and early thirties as well as client board members in their 60’s and 70’s passed through my mind. I need to know more about this, I said to myself. I think that political and economic philosophy has been a part of many discussions held with these individuals and groups implicitly but not explicitly. Bringing philosophical assumptions about the economy into the conversation is a dangerous thing to do just like introducing philosophical assumptions about religion, same sex unions, creationism versus evolution, racism and other subjects. I wondered if many of my students and consulting clients work toward a goal without an explicit understanding the political, economic and philosophical foundations of their ideas; what I call serial entrepreneurs. Serial entrepreneurs are individuals who create new startups or pursue acquisitions without considering anything other than attaining their goal. It is more about the emotion of the chase than a rational consideration of choices and a fact-centered decision process that takes into consideration the needs and wants of a variety of stakeholders to the goal such as the environment, society, consumers and, yes, government. In addition to the critique of his ideas listed above, I have a few concerns of my own. First, I understand that Thiel is suggesting that the startup mindset is one of creating long term creative monopolies that benefit creators, owners and consumers. However, I think he inappropriately dismisses those companies who are in industries with fewer breakthrough product possibilities, either because of self-limiting thinking or reality. I also don’t like the way he dismisses those leaders working in commodity industries who produce goods and services we all need and take for granted. Is there no value in that? There are competitors in many sectors like this who are trying to differentiate themselves to gain a competitive advantage even if only temporarily. This is often the case, as he suggests, in more commodity based businesses, where technology is not a significant driver of possibilities. Secondly, when he promotes that creative monopoly means new products that are good for everybody and provide sustainable profits for the creator, something is missing. We have the silicon sultans (the creators) and everybody else is lumped into the everybodies. The everybodies seem like the nobodies in his thinking. They live in the economic and philosophical wash created by the Thiels of the world. I would like the author to spell out more clearly how new products will benefit everybody and if the creator is intent on improving the lives of everybody with the creative monopoly. The complete statement of the creator’s intention is not clearly articulated. There is a long history of entrepreneurs promising wealth and an increased standard of living for the masses as they have built their banks and railroads, mined the earth’s natural resources and dominated labor. That is why we have the government regulation he so hates now. Does he have more foresight than the economic transformers and industry destructors and creators of the past? So, is Thiel an old world capitalist robber baron, a Libertarian, or something else? I am still not quite sure. Either he hasn’t articulated his economic philosophy or he doesn’t possess a coherent one at all. That is a problem for me as I’m not clear what his macro level goals are. He just seems to be a very successful and rich guy who is using his success to sell a set of incoherent ideas! This can be further illustrated by comparing his thoughts with those of a very different and clearly articulated business philosophy. Let me turn our attention to a business with a very different philosophy about monopoly, competition and the intention to do good. This will pose a counter point to Thiel’s approach. Let me introduce you to Hamacas Merida, a hammock company we visited recently in Merida, Yucatan, Mexico. We visited the store, took an informal tour and bought a hammock. By describing an almost polar opposite business mentality the beliefs and values that drive the two become clearer. We first read about this privately-held company while in Merida, Yucatan, Mexico last December (http://www.yucatanliving.com/culture/the-power-of-hammocks.htm). We stumbled upon it walking the city one day and stopped in for a look.