The course of lectures "Startup". Peter Thiel. Stanford 2012. Lesson 12
In the spring of 2012, Peter Thiel ( Peter Thiel ), one of the founders of PayPal and the first investor FaceBook, held a course at Stanford - "Startup". Before starting, Thiel said: “If I do my job correctly, this will be the last subject that you will have to study.”
One of the students of the lecture recorded and posted the transcript . In this habratopika astropilot translates the twelfth lesson.
Lesson 1: Challenging the Future
Lesson 2: Again, Like in 1999?
Session 3: Value Systems
Session 4: The Last Step Advantage
Session 5: Mafia Mechanics
Session 6: The Law of Thiel
Session 7: Follow the Money
Session 8: Presentation of an Idea (Pitch)
Lesson 9: Everything Is Ready, But Will They Come?
Session 10: After Web 2.0
Session 11: Secrets
Session 12: War and Peace
Session 13: You Are Not a Lottery Ticket
Session 14: Ecology as a Worldview
Session 15: Back to the Future
Session 16: Understanding Yourself
Session 17: Deep Thoughts
Session 18: Founder - Victim or God.
Occupation 19: Stagnation or Singularity?
War and Peace
Reid Hoffman , co-founder of LinkedIn and partner at Greylock Partners (one of Silicon Valley's leading venture capital investors), joined the class as a guest. All thanks for the good material to him and Peter. I tried to be precise, but keep in mind this is not a verbatim transcript of the conversation.
I. External War
Whatever it was, but we all know well what war is. The United States has been waging a war on terrorism for more than a decade. We are also waging more prosaic wars with poverty, cancer and drugs.
But most of us do not spend much time thinking about why the war begins. When is she justified, and when not? It is important to understand these questions in different contexts, because the answers to them are often related to startups. The background of this question is a constant value: how to avoid destructive actions and more often to perform effective and productive actions?
Often a war begins as a representation. People threaten each other. The governments of different countries send missiles at each other. States begin, as obsessed, to copy each other. And so we come to the space race (competition between the USSR and the USA in the middle of the 20th century and further in the field of space technology development). There was also a tense geopolitical situation when Fisher played with Spassky for the title of world chess champion in 1972. Then another miracle happened when the US national hockey team defeated the USSR national team in 1980. These were amazing events that were of great importance. But it was still a theatrical performance. At first, such ideas do not seem dangerous, they seem amazing. In a manner,
In a sense, competition and war are powerful motivators. The space race was incredibly intense. People worked extremely hard because they competed with the Russians. The atmosphere is heating up so much that even some kind of awkwardness arises when the rivalry stops. The space race ended in 1975, with the launch of the joint Soviet-American pilot space project Soyuz-Apollo. None of the parties was confident in the direction of events. Did they suddenly decide to become friends?
Thus, war can be a powerful motivating force, it pushes people to improve. This is similar to a situation where a physically weak guy pumps his muscles and hits a bully who used to constantly bully him.
But this example illustrates not only the motivational aspect of war. When people behave short-sightedly and focus only on war, they see nothing but it. They become like their enemies. The skinny nerd builds up muscle and becomes the same bully as the one he always hated. The working theory is that you must carefully choose your enemies, because soon you will become like them.
“Hey, you goner, your ribs stick out!”
This is a psychological counterbalance to the economic discussion that we held in the third and fourth classes. In a world of perfect competition, no one makes a profit. Economic profit is crowded out by competition. But the economic version of competition is just a snapshot. It illustrates the problem, but does not explain why people still want to compete. Kissinger's quote said that "the battles are so fierce because the stakes are so low." People participate in fierce battles for sheer crumbs. But why? To decrypt a static snapshot of the situation, you will have to deal with the psychological background and features of the development of the conflict. Everything unfolds as follows: a conflict arises. People on the one hand become obsessed with the idea of defeating their opponents on the other. As the conflict grows, opponents are becoming more and more alike. In many cases, the situation goes beyond the theatrical performance and goes into the stage of total destruction. The loser loses everything. And even the winner can suffer big losses. This happens all the time. Therefore, we must ask: how often is all this justified? Does this make sense in at least some situations? Can all this be avoided?
C. Philosophy of conflict
There are several competing paradigms in terms of which people view conflict. One of them is the version of Karl Marx. Conflict exists because people hold different views on the same thing. The more differences in views, the greater the conflict. The bourgeoisie is fighting the proletariat because they have completely different ideas and goals. This is the inner idea of the struggle: an absolute, categorical difference between you and your enemy. This inner message is a useful propaganda tool. The confrontation between good and evil has always been a powerful motivator.
Another paradigm is Shakespeare. It can be called a look at the struggle from the outside: from the side, all opposing participants look as if they are the same. It is clear why they are fighting each other. Recall the prologue of Romeo and Juliet:
Two noble families, equally
venerable, lived in Verona ...
Two surnames, equally venerable. However, it seems they hate each other. The plot is developing very dynamically, and they increasingly become similar to each other in the process of struggle. They no longer care about what started their struggle. Recall Hamlet:
He, strengthened by proud ambition,
Laughs at the unknown outcome of the
business he has begun, that which is transient
He has left at risk and fate
For shells of eggs. Greatness,
Worthy consists in the ability
to exploit for no reason; if it’s a matter
of honor, then for quarrels
There is no need for a reason - enough little things.
In order to be truly great, you must want to fight for reasons no more significant than eggshells. Anyone can fight for important things. Real heroes fight for things that are not important. Hamlet does not achieve greatness; he is too focused on the external message - the meaninglessness of everything around him. He can never force himself to fight.
II. Internal warfare
A. The past is the preface
So which paradigm is right in the technology world? How right is Marx or Shakespeare?
In the vast majority of cases, of course, Shakespeare is right. People become obsessed with their competitors. Companies are approaching similarity. They squeeze out all the juices from each other as a result of increasing competition. And each side loses the ability to see the main thing.
Take a closer look at the 1970s computer industry. At that time, IBM was the dominant company. However, there were a few other players, such as NCR, Control Data, and Honeywell. Please note that these companies have long been household names in the world of computer technology. At that time, all of these companies were trying to develop their own mini-computers that could compete with IBM machines. The computers of each of the companies were slightly different from each other, but conceptually they were quite similar. As a result of their shortsightedness, these companies completely missed their chances to win in the struggle for a microcomputer. IBM managed to develop a microprocessor and overshadowed by the value of its invention all competitors.
The plague version of this war in the 90s was a fierce battle in the market of online stores for pet products. Participants in the battle: Pets.com, PetStore.com, Petopia.com and about 100 other online stores. The inner message was the absolute struggle for dominance in the online market for pet products. How could you defeat the enemy? Who could afford the ads during the Super Bowl? Etc. Players completely lost their vision of the external question of whether it was necessary to be in the market of online stores selling pet products. The same situation was with Kozmo, Webvan and Urban Fetch. The only thing that mattered was victory. The external question, which was really important and sounded like “Is this war worth fighting at all?” Was simply ignored.
And you can find such a pattern of behavior everywhere. The example of the Oracle war against Siebel is particularly ridiculous. Oracle was a large database software company. Siebel was founded by one of the top Oracle retailers, so development dynamics have been dangerously mimicking and highly competitive from the start. Siebel tried to imitate Oracle literally in everything, down to office design. It began as a theater, but, as often happens, has crossed the line. What begins as a theater often ends badly.
At some point, Oracle came up with an interesting attack plan. Siebel did not have room for a large billboard in front of the office. Oracle rented a large truck and put it in front of the entrance to the Siebel head office. On this truck, they posted all kinds of ads in which Siebel was ridiculed to lure their employees. But in 2005, Oracle bought Siebel. Most likely, it was at this moment that they got rid of that truck.
Announcement wars are not just bad jokes. They are largely indicators of how companies thought about themselves and about the future. In the 90s, Informix started a billboard war with Oracle. Informix installed a sign near Oracle headquarters after house number 101, which read: “You just passed Redwood Shores. And so are we. ” (“Passed” - in this context, they also “overtook”, “surpassed”).
Another dashboard with the Caution Give Way to Dinosaurs sign was installed in front of the Oracle towers.
Oracle fired back by launching a large ad campaign that used snail imagery to showcase the results of TPC benchmarking of Informix products. Of course, advertisements were not a novelty, but what was really strange was that they were not addressed to customers, companies aimed them at each other and at the opponent’s employees. All this was supposed to be a theater of motivation. According to Ellison’s theory, everyone should always have an enemy. This enemy, of course, should not surpass you in size enough to be able to defeat you. But it should be big enough to impress the rest. The formula is: theater + motivation = productivity. The flaw of such a strategy is that the creation of fake enemies to motivate others often leads to the appearance of real enemies, that can destroy you. Informix fell apart in 1997.
B. The end of today's business model before it comes
The Shakespearean model today is true. For example, a Square card reader. In general, Square is the first company to properly set up credit card processing using mobile devices. They developed both a software and a hardware component, and created a brand for this already well-known white square device.
After that, an explosion began in the production of similar readers. Even PayPal has released its reader in the shape of a triangle. They simply copied the reader's idea in the form of a simple geometric shape. But they tried to surpass Square - 3 sides, in the end, easier than 4.
Before the PayPal PR people celebrated their victory, Intuit appeared with its card reader. It had the shape of a cylinder. Then came the version from Kudos, in the shape of a semicircle. Maybe soon someone will release a trapezoidal card reader. Perhaps after that the geometric shapes will end.
How will it all end? Do you really want to enter this market and try to make another card reader right now? There is a strong feeling that companies directing their efforts to copy readers are now experiencing big problems. It is much better to be the developer of the original card reader and focus on the problems associated with it, or the company - the original manufacturer in a completely different field.
C. Even big boys do it
Not only startups cause competition for imitation. The rivalry between Microsoft and Google, although not completely destructive, is largely based on Shakespearean dynamics. In a sense, they were doomed to war from the very first day, because they are so similar. Both companies founded computer freaks. People at the head of something are obsessed with being the smartest. Bill Gates is obsessed with IQ tests. Larry and Sergey, we can say, raised this chip to a new level. But Microsoft and Google also started very differently. At first they generally did completely different things and produced completely different products. Microsoft released Office, Explorer, and the Windows operating system; Google had their search engine. What then was the subject of war?
We wind the tape 12 years in advance. Now we see another confrontation - the Bing search engine from Microsoft against the Google search engine and the Google Chrome browser against the Internet Explorer browser. Microsoft Office may now compete with Google Docs. At the moment, Microsoft and Google are direct competitors in several key areas. We can assume why: each of these companies was guided by an internal message in which they simply had to beat a competitor, because they could not afford to give a single inch. Microsoft just needed to develop a search engine, and Google - Docs and Chrome. But is that right? Or maybe they just fell victim to the dynamics of imitation of each other and just got mad about it?
The irony is that then Apple appeared and got ahead of them all. Today, Apple has a market capitalization of $ 531 billion. Google and Microsoft combined cost only $ 456 billion. But just 3 years ago, both Microsoft and Google were individually larger than Apple. It was an extraordinary shift. In 2007, the main competition was between Microsoft and Google, but war is an expensive process. And those who avoid it can often launch a surprise attack and take advantage of a peaceful state.
D. If you cannot win, unite
PayPal had a similar experience. Confinity released PayPal at the end of 1999. The first competitor was the X.com Elon Musk project. The parallel development of Confinity / PayPal and X.com in the late 1990s was astounding. They are located 4 blocks from University Avenue in Palo Alto. X.com launched a product that repeats the characteristics one after another, up to the same cash bonus and referral structure. December 1999 and January 2000 were saturated with competition and motivation. PayPal employees worked 90-100 hours a week. Of course, it was not clear that what they were working on made sense. But efforts were not focused on objective productivity or utility; the focus was on defeating X.com. During one of the daily meetings on how to win the war, one of the engineers presented his scheme of a real bomb.
The leadership of each company was scared. In February 2000, we met in neutral territory at a restaurant on University Avenue, equally remote from the offices of both companies. We agreed on a 50/50 merger in early March. We teamed up, raised some money before the crisis, and won the time to create a business.
E. If you can, run. If not, fight and win.
If you are forced to join the war, then you must use force superior to the opponent and quickly win. If you seriously take the idea that you need to carefully choose enemies, because the fight against them makes you look like them, then your war should be short. Let the process last too long and you lose yourself in it. Therefore, your strategy should be shock and awe - real shock and awe, and not the fake ones that will drag you into a 10-year war. You must win a swift victory, but since it is often impossible to guarantee a quick victory, first of all find ways to avoid the war at all.
We will return the matrix two to two from the fifth lesson. On one axis, we have athletes and batans, athletes are competitors with a zero sum, and nerds are employees with a non-zero sum. On the second axis, we have war / competition and peace / monopoly capitalism. We talked about the fact that the company should ideally strive for peace and among employees have both nerds and athletes - nerds create a business, and athletes fight (and win) when and if you are unlucky and you are forced to compete.
The hybrid model of a nerd-athlete allows you to deal with external competition, but at the same time creates an internal problem: if you need to have several highly competitive employees in your team, how can you avoid conflicts within the company? Often, such conflicts become the most destructive. Most companies die in the internal struggle, although from the outside it looks different. This is like an autoimmune disease (a disease based on the reaction of the formed autoantibodies with the body’s own tissues - approx. Translator). The apparent cause may be external competition, but the real reason for the destruction of the company is internal.
If we extrapolate the internal struggle in the company to the concept of “Marx vs. Shakespeare”, we get two theories about wars between colleagues. Marx would say that colleagues are fighting among themselves because they strongly disagree with each other on what the company should do or in which direction it should go. The Shakespeare version presents everything exactly the opposite: people fight because they all want to do the same things.
Shakespearean dynamics are correct, with virtually no options. A typical case is when two or more employees apply for one role in the company. People who want to do different things do not fight among themselves in normally functioning companies: they just take and do different things. Fight usually those who want to do the same things.
At PayPal, the center of the conflict was the product team. David Sachs wanted the product to be one. It was a good approach, but a less good by-product of this approach was that it was a recipe for employees creating a product that intersected in working with all the rest of the company’s employees. The product could not do anything without climbing into someone else's territory. A significant part of the CEO’s job is to stop such conflicts in the first place. You need to separate potential enemies from each other. The best way to do this is to give clear definitions and describe the exact roles. Of course, startups should always be flexible and dynamic, and the roles in them are changing. You cannot avoid internal warfare by separating them from each other, as is done in large companies.
PayPal solved this problem by completely rebuilding staffing every 3 months. Targeted repositioning of people helps to avoid conflicts even before they actually begin. The craziest thing about domestic politics was that everyone was judged by only one criterion. Each employee had only one function that he performed. And everyone was doing something else. This was not a very popular approach, at least from the very beginning. People were more ambitious. They wanted to perform three or four different functions, and instead they could only do one thing. As a result, this approach turned out to be a very good way to focus people on their tasks instead of focusing on each other. Concentrating on your enemy is almost always wrong.
III. Conversation with Reed Hoffman
Peter Thiel : How do people fall into the trap of war? Is there any strategy how to avoid war at all?
Reed Hoffman : The most important thing is not to get bogged down in this process. To do this, you must carefully consider your strategy and competitiveness. What I would add to your comments is the basic idea that one of the reasons for competition is that people need resources. People need different things, and often they are even ready to fight to get them. Competition for resources can be a natural process, and not just a psychological background.
Peter Thiel : I can object that the concept of prestige, for example, is not a rare resource.
Reed hoffman: But people really appreciate him, so much that they are fighting because of him. When you are a CEO, people come to you every day and demand new positions, while the set of their duties does not change significantly.
Peter Thiel : That's true, at PayPal we also experienced the ruthless phenomenon of craving a higher position. We had a lot of vice presidents, then a lot of senior vice presidents. If we consider this phenomenon in retrospect, then it may not have been very stable. But they bought us before the storm broke out.
Reed hoffman: Returning to your question, it is very important for start-up companies to avoid competition, because you cannot isolate it by turning it into only one front. Competition attacks you on the client front, in the field of recruitment and financing, in the field of business development - on all these fronts. When you are one of many, your work becomes much harder, and it is already quite hard. The great company founding strategy is heretical, and it is true. It ensures that, at least during the initial period, no one will harass you. Over time, you still begin to pursue if you are doing something good. This can also explain the competition between Microsoft and Google, which you highlighted as something strange. Each of their companies has its own profit model, its own gold mine. At the start, they were quite different. Their goldmines allowed them to finance attacks on each other's goldmines. If you can destroy an alien source, then in the end, you can defeat the enemy.
Peter Thiel : The criticism of this excuse for competition is that the moment “in the end” never comes at the scheduled time. Microsoft is losing a billion dollars a year on Bing.
Reed hoffman: It is possible that this scenario does not work as well for technology companies as it did before. Search is an ongoing battle. But there are other types of success. Take a look at the Xbox. In this case, Microsoft’s decision to continue to compete worked. When Sony took the wrong step, the Xbox became a truly viable franchise. Microsoft's strategy is to be the owner of all the valuable software on desktop computers and other rooms, and not just individual products. Therefore, in the case of the Xbox, Microsoft entered the living room. Xbox is a tricky thing. However, competition is supported by the feeling that there is a lot of money in this idea. Therefore, if you have a startup, and you have found a little gold, you can count on competition from all sides, including the most unlikely.
In some cases, competition takes on simpler forms, and this gives you more freedom of action. For example, banks have great difficulty in innovating, and this has played into PayPal's favor. In more complex competition scenarios, you really have to come up with something innovative in order to win. Complex competition in the absence of a serious advantage leads to a war of survival. People can be drawn into fierce competitive wars by the temptation to get a gold mine. It's like chasing a cornucopia in hunger games instead of just running away into the forest. Sometimes people justify this by convincing themselves that "if we do not fight here, we will fight somewhere else." Sometimes this is a valid argument, and sometimes not. But usually it's just a pursuit of a gold mine.
Peter Thiel: However, people are not very good at assessing probability. It is unreasonable to spend all your money trying to get strangers if the probability of your success is small. I think this has a crazy psychological aspect. This is not a sober calculation, because considerable effort is spent on what is possibly unprofitable at all.
Reed Hoffman : It’s true that emulating is much easier than inventing. Many people fail to invent something new. An iPhone in a blue case, triangular card readers instead of square ones, is not an invention. If you can really invent cool things, this is a viable strategy. However, most people do not know how to do this, and here we see high competition.
A side note on inventions and innovations: when you have an idea for a startup, consult with people from your environment. Ask people what they think about it. Do not seek flattery. If the majority will like your idea right away, and they will call you a genius, then the matter is bad - most likely, your idea is obvious and will not work. What you need is a really thoughtful answer. About two-thirds of people in my circle thought LinkedIn was a stupid undertaking. These are very smart people. They realized that the value of a social network without a million users is zero. But they did not suspect secret plans, on the basis of which we believed that the project would fire. We received the first million users in 460 days. We are now growing at a pace of 2 users per second.
Peter Thiel: One of the most impressive moments of the LinkedIn project is a strategic approach to what no one was thinking about - a social network for business. 460 days is fast enough, but not insanely fast. PayPal reached a million users in 4-5 months ... (pause, laughter). However, while you always need to grow fast, you should also be able to grow slowly. If you are targeting a low-competitive niche, then 460 days is a long time. You have more time to build a good foundation, and then implement and support the project.
Reed hoffman: Obviously, it is important to target a niche that is not occupied. The main question is what will you do as soon as everyone knows about you. You must have some serious competitive advantage. What is it? Speed? Inertia? Network effect? It can be many things at once. You need to think carefully about this moment, because people will immediately begin to pursue you as soon as you find something valuable. You have found your gold mine, now you need to protect it. It's always easier to come and pick up someone else's gold than to find your source. You must have a plan for long-term dominance in your market.
Social networks were doing well before LinkedIn. At the very beginning, the competition for the niche in which LinkedIn exists was quite high. But the rest of the companies, which were focused on social relations in the business, wanted to sell their services to companies. They thought the companies themselves would build the networks. LinkedIn, of course, wanted to focus on people, and remained true to its vision. It's terribly easy to lose the large-scale vision of things. People always follow CEOs and tell apocalyptic stories that we will all die if we do not change our strategy to confront competitor X. If you focus on everything at once, then you are doomed to wage war without a clear vision of the big picture, and you, Of course, lose.
There is also an option that applies to people. People are looking for their own gold - career steps, prestige, status. If many people compete for such things, then, as you said, this is a scenario of internal disasters in the company.
At us on LinkedIn, we are struggling with this by creating a clear role structure, much like your PayPal. But we are creating such a structure for teams, and not for individuals. Each team gets its own responsibilities. One team is responsible for growth, the mobile version, or some elements of the platform. Occupations sometimes overlap. Random conflicts are inevitable, but they are manageable. The plus is that each team functions as a separate startup. Each team has its own clear goals and metrics. From time to time you have to commit or refactor something, and that’s normal. Changing the course of the group and various approaches to prioritizing can cause conflicts. But it's worth it. In fact, this is a bad sign, if you do not sometimes need to reorganize the work of your employees to increase its effectiveness.
The key point found at PayPal is that you give people the opportunity to succeed. Perhaps they will not agree with this approach in everything, they should not. There just needs to be some sensible method to get people interested. This is the best way to avoid internal conflict. Another way - the passage of the entire vicious circle of “we are against them” - is also very motivating. But this path is risky: staged war can become real. Such an approach can blur your long-term goals and, as Peter said, your engineers can start designing bombs.
Peter Thiel: An external war is a very effective way to fabricate an internal world. In March 2000, PayPal had $ 15 million in a bank account. Money should have ended in 6 weeks. Our financial director, Rolef Botha, believed that the situation was very alarming. He rightly shared his concerns with everyone. But the engineers were not interested.
The only thing that mattered to them was defeating X.com. They absolutely did not care if in the process our company went bankrupt.
Reed hoffman: So you cannot completely immerse yourself in war mode. You must develop a strategy to avoid external and internal competition. It can lead you very far, but competition is inevitable. Even if you develop good projects with network effects, people are not always smart. They will still compete with you, even if it is not profitable for them. Therefore, you must build a strategy on how to work with competing forces, both within the company and in the outside world.
In the world of technology, the landscape changes depending on which technology becomes available. Oracle and Siebel dominated enterprise software because they dominated the deal business. And then cloud technologies appeared, and now you have a completely new type of product that performs the same functions. Truly large companies have been created over the past decade. SalesForce is a typical company that has achieved success and issued its shares.
Peter Thiel : And SalesForce was founded by Larry Ellison to compete with Siebel in developing CRM. Then it succeeded and grew, and now, of course, Oracle hates SalesForce.
Reed hoffman: This once again underlines the inevitability of competition. In the technological world, if you do not constantly think how to catch the next wave, then one of them will catch you. Yahoo was a monopolist in the front-end portion of the Internet in 2000. It had the perfect strategy. But the company did not adapt, did not take into account social and other trends, and this was not so ideal. And now, after only some ten years, and without catching a few key technological waves, Yahoo is in a completely different position.
Peter Thiel: In the last lesson we talked about secrets. You must have a secret plan. Not all companies have a plan, not to mention a secret plan. This is difficult because the secrets of others are kept secret, and we may not know anything about them. But, taking into account this reservation, what companies do you think have the best secret plans?
Reed hoffman: I think Mozilla has good plans. They understand that there is a transition from desktop applications to mobile. They differ from traditional companies in that they do not try to create a closed franchise, but try to maintain an open ecosystem for innovation. Quora has interesting plans for giving people access to knowledge. Dropbox is also interesting, and perhaps it has big plans, in addition to providing a hard drive in the cloud. The main idea is that if you do not have an original and deep idea, a possible gold mine, then you have nothing. Not all ideas work. But you should have just that.
Peter Thiel: One of the good lessons that can be learned from playing a game of chess is that even a bad plan is better than its complete absence. Nevertheless, the usual case is when there is no plan. When I taught at the Faculty of Law last year, I asked students what they would like to do in their life. Most had no idea. Several people wanted to become partners in law firms. Even fewer students thought they could become partners if they made an effort. Most of them were going to work in law offices for several years, and "then it will be seen."
In general, this is chaos. You must either love what you are doing, believe that it is a direct path to something else, or think that it is an indirect path to something. Adding lines to your resume every two years, thinking that this will expand your horizons is not an option. If you climb a hill, you have to step back a bit from time to time and look at this hill. If you are only marching and not evaluating the progress, then you will simply grow old and in the end will realize that the hill was very low.
One of the reasons people don’t want to think about the future is because they don’t like to change. It’s unfashionable to plan something and believe that you have some advantage that you can use to implement some projects.
Reed hoffman: People also underestimate how great their competitive advantage should be. It must be a truly comprehensive competitive advantage. If your technology is only slightly better or your artists are slightly better than your competitors, then you will lose. Minor improvements are rarely decisive. You should plan to be 10 times better than your competitors.
Peter Thiel: I remember someone talking to the elevator about anti-spam technology. The author promised that the technology will be better than all existing examples of anti-spam, which sounded just fine, because about 100 companies work in this area. The problem was that it took half an hour to explain why it was supposedly better. It was not a short sentence like “We are 10 times better / cheaper / faster / more efficient”. Any improvement was possibly quite minor. Buyers will not give you half an hour to convince yourself that your antispam is better than the rest. A half-hour talk about antispam is just another spam.
The situation is heating up a bit: is there a way to stay on the crest of the wave before it swallows you?
Reed hoffman: We asked potential employees at Greylock how they would distribute investments of $ 100 thousand between iOS and Android applications if they had to bet on the future. The only wrong answer is a 50/50 investment distribution. This is the only answer that is equivalent to the answer "I do not know." Think over the answer and take some position. You will have your own vision of the issue. This vision - or, to be more precise, the ability to have your own vision - it is this that will support you over the wave.
Another important thing is the importance of the social circle, your network. Meet smart people, talk with them. They are aware of what is happening. They see things that others are unaware of. If you try to analyze everything yourself, you will lose sight of a lot. Talk with such people about what is happening around. Theoretically, startups are evenly distributed across all countries and states. In practice, this is not so at all. Silicon Valley is the heart of startups. Why? The answer is simple: social circle. There, people talk to each other.
Peter Thiel: This is a compromise. You can’t just go and tell everyone about your secret plan. You must protect your information, while others protect yours. At the same time, you need to talk with people and be open to communication in order to get all the benefits that a social network can provide. This is a very fine line.
Question: Do people tend to overestimate competition? What about the argument that you should not do something because Google may already be doing this?
Reid Hoffman : When I evaluate start-ups, the stamp “Google can already do this” is not a critical argument against him, unless a startup is a search engine development.
Google has a ton of smart people. They can do exactly the same thing as you. So what of this? This does not mean that you cannot do this. Perhaps for Google it will be uninteresting. In fact, they focus on only a few things. Ask yourself what is more likely: a nuclear war or the fact that this company considers competition with me to be one of its most important 3 goals? If the answer is “nuclear war,” then any specific potential competitor simply does not matter.
Peter Thiel : Everyone comes up with an authorial version of why their product is different from the others. From the side, all products look the same. Therefore, how can you say for sure that what you do is similar or different to what your competitors do?
Reed hoffman: You cannot systematize this. This is a problem that requires human intelligence and judgment. You are considering important factors. You bet. Sometimes you are right, sometimes not. If you think that your strategy will always be right, then you are mistaken.
Question from the audience : Can you give examples of how someone successfully avoided the competition?
Peter Thiel : PayPal competed for every feature with X.com, and it lasted 8 weeks. The best way to stop or avoid war is to merge. It was very difficult to lower the passions after the merger. It was hard to become friends immediately. Events are always remembered in a more positive perspective, when in the end everything turns out. The converse is also true: rivalry is exaggerated post-factum, if not everything goes smoothly.
Reed Hoffman : In PayPal, the internal struggle was very intense. Peter said one key thing: either do not fight, or fight and win. But you should be skeptical that you will definitely win if you get involved in a fight.
The greatest tension existed between PayPal and eBay. But eBay had an internal product called BillPoint. PayPal, which played the role of a third-party disintegrator, was a serious loser. BillPoint was the only existing gold mine. We had to win. It was time to pump the athlete's competitive talent. One of the decisive steps of this war was focusing on email. The actual auction platform was not an eBay website, as most suggested. It was an email. If someone won the auction, then the notification came by e-mail. EBay knew about it, but did not understand the importance of this. But PayPal, on the contrary, guessed about this moment and optimized its actions. Very often PayPal notified people about winning an auction before eBay did it.
It was much more difficult to contrast something with the Buy Now option. There, eBay excelled by pulling people to pay through their BillPoint. It was more difficult to get in the way of people if they just bought and paid for something immediately on the site.
The advice is to always keep an eye on the battle. Never relax. Only paranoid wins the fight.
Question from the audience : What do you think of the competition between Silicon Valley and New York? Reed, Mayor Bloomberg argued that New York will become the dominant scene in the technology world because the best want to live there. He quoted you as saying that you “don’t love this whole culture” and called this view of things “limited”.
Reid Hoffman : Mayor Bloomberg and I are friends, but I will answer him.
So, Bloomberg is trying to build technological New York, which will compete with and defeat Silicon Valley. Well, we wish him good luck. The more development centers in the USA, the better for us.
But in order to compete, they will definitely need luck. Silicon Valley has an amazing network effect. Technology is what we do, it's a game that we all play. If there is a place in the world where it is worth doing technology, then here. People move here to become part of the technological world.
New York technomir will have to compete for engineers. Many of the best engineers come to hedge funds to move to Silicon Valley.
One way to understand the effect of competition is to look at the companies that formed here. They stand up to global competition because they have stood the difficult test here. The best engineers come here to work. And they are completely dedicated to their work.
The whole culture of New York has neither positive nor negative significance for achieving success in the game of innovative technologies. It is a great place to live. Well, Mayor Bloomberg, you are very pleased with people who want to live in New York because of its culture, theater and opera. Personally, I always love to go there. But we need people who first of all want to win this game and will not miss the Broadway show too much.
Question from the audience: And maybe, in a sense, is culture important? Silicon Valley engineers are not very sociable. Then how can they play social games?
Reed Hoffman : It’s not true that ALL great companies have come out of Silicon Valley. By this I just want to say that it is very difficult to ignore Silicon Valley as the best place for technology companies. But, of course, not all great technology companies are Valley products. This is really impossible. For example, Groupon could not be invented here. They need 3,000 sales people. This is not exactly what Silicon Valley specializes in. But it worked well in Chicago. Therefore, here Silicon Valley has something to learn, as well as myself. And of course, there are other scenarios.
However, the Silicon Valley scenario is simply excellent, and most likely the best. If you need to choose what to put on - a technology portfolio or a portfolio of sales processes, choose a technology one. New York is the second interesting place for consumer internet. And it is unlikely to displace Silicon Valley from first place.
Peter Thiel: My opinion is that New York is far enough from first place. There are some very cool companies that were based in New York. But one of the arguments against New York is that there the media industry plays a much larger role than here. This creates fierce competition, because people focus on each other and not on creating something. New York is more competitive in its structure, in every sense. People literally live on each other's heads. They are trained to fight and they like it. Sometimes this is very motivating, perhaps some of this approach helps to form new ideas. But at the same time, such habits push people to unnecessary wars. And we will continue to watch as even more original and cool companies come out of Silicon Valley. Reed, last question. What advice would you give to young entrepreneurs?
Reed Hoffman : You can learn a lot from those companies that have been successful.
Companies have gained a lot with the advent of Facebook's Open Graph platform. If you ignored it, instead of studying it, it could be a disaster for you, depending on what you are going to do. But, of course, studying everything that is possible before creating something is also a wrong approach.
The key moment is a circle of contacts, acquaintances. This is a very important way in which you get new information. Meet smart people, talk with them. What have you seen in the last few months? What do you know? The “go and read everything” approach will not work. You can die before you finish reading. Better just exchange ideas with smart people from your social circle. Not always, of course - you also need to work - but in a metered way. Use what you have learned and update your strategy, if there is a guarantee that it will work. And then apply it.
I ask for translation errors and spelling in PM. Translator - astropilot , all thanks to her.