Do contrarians shape the world? I believe the case can be made that Steve Jobs, Galileo Galilei, Leonardo da Vinci, and many others were contrarians at some point in their lives (maybe their entire lives). Their views were contrary to the everyday thinking but ultimately changed the lives of everyone around them.
Peter Thiel, PayPal co-founder/author/investor, is a contrarian in his own right. His book Zero to One: Notes on Startups, Or How to Build the Future is filled with extreme opinions surrounding investing, business, and life. Last year, he spent an evening at Stanford, and quickly outlined what he believes are the current major trends/shifts in the business world today:
- There are no formulas for business, only pseudo-science.
- All unhappy companies are alike because they failed to escape the essential sameness of competition.
- There are companies that are competitive and there are companies that have monopolies.
- Capitalism and competition are antonyms.
- We’ve discovered most things already. If there are things we haven’t discovered. They’re super hard to figure out.
- There will be two modes of progress in the 21st century — globalization (copying what works) and technology (discovering new things).
Checkout the video below and the transcript.
It’s always a tremendous privilege to come back to Stanford. This is where I feel my whole career, my whole life after high school really began. This is also where my book, Zero to One, started two years ago out of this class.
One of the challenges about teaching entrepreneurship or writing about it is that people normally go about it in one of several ways that don’t quite work. One approach would be that you would just tell people stories about your own experiences. I could spend the whole evening talking about what I did at PayPal in 1998, 1999 and how we combined email with money. It’s all very idiosyncratic. Maybe there are some fun war stories, but you can’t really generalize from that too much.
1. There are no formulas for business, only pseudo-science.
At the other end of the spectrum, you have all of these attempts to teach things where it’s basically like a formula. You follow these five steps and you will be able to build a successful company. I think the problem is that there are no formulas for business, no science. These things end up being very sort of pseudo-scientific.
It’s because every moment in the history of business happens only once. The next Bill Gates will not build an operating system. The next Larry Page won’t build a search engine. The next Mark Zuckerberg will not be building a social network. If you are copying these people, you are in some sense not learning from them.
The point of departure for my class and for the Zero to One book is this idea the uniqueness of all of these great companies and what’s truly important and valuable is extremely unique. I try to get at this through a series of contrarian kinds of questions.
One question is always, what great business is nobody building?
There’s a more intellectual version of it, which I always like to ask as an interview question: tell me something that’s true that almost nobody agrees with you on. This turns out to be a shockingly hard question for people to answer. It’s hard because, for one thing, we’ve just been taught that truth is conventional, that truth is what everybody agrees on. Coming up with something new that people don’t already agree on puts us in a very uncomfortable sort of place. It sounds like it’s really hard to do this, so you have to be really, really brilliant or so we think.
The other reason it’s a very tough question to answer is because you sort of think about the literal dynamic of an interview where I’m asking the question of somebody. You give me an answer and it’s like, “Oh yeah, I already thought that. I agreed with that.” That’s the wrong answer. The right answer is one that in some sense people might not agree with. I think it often requires quite a bit of courage to come up with an answer that people haven’t thought of. We’re often sort of intimidated from thinking through these things.
Today, I want to give, in my brief remarks, three answers to this question. In some ways, my Zero to One book is like a whole series of things that I believe to be true that I think most people don’t agree with. I’m going to give you three answers to this question tonight.
The first answer that I believe, and this sort of pulls from the uniqueness of these companies, is that (in the opening sentence of Anna Karenina) that all happy families are alike. All unhappy families are unhappy in their own special way. I think the opposite is true of business. I think all happy companies are different. They’re doing something unique.
2. All unhappy companies are alike because they failed to escape the essential sameness of competition.
When the Wall Street Journal excerpted the chapter entitled “All Happy Companies Are Different,” they re-titled it as “Competition is for Losers,” which kind of got people’s attention and it’s of course because we normally believe the opposite. We believe that the losers are the people who don’t compete intensely enough. You’re a loser if you’re not competitive or not really competing, but not that you’re a loser if you’re somehow too obsessed with competing. If you’re too focused on competing, maybe you’re losing sight of what’s really important.
3. There are companies that are competitive and there are companies that have monopolies.
The way I articulate this is the most important distinction in business that people don’t talk about enough is that there are two kinds of companies in this world. There are companies that are competitive and there are companies that have monopolies. If you are a one of a kind company, a happy company that’s doing something different, you are a monopoly. It is the goal of every founder, of every entrepreneur, it should be their goal to try to build a monopoly business.
4. Capitalism and competition are antonyms.
To frame this as an unconventional truth, most people believe that capitalism and competition are synonyms. I believe capitalism and competition are antonyms. I believe that a capitalist is someone who is in the business of accumulating capital. A world of perfect competition is a world where all of the profits are competed away. The example I use throughout, a bad type of business to go into is opening a restaurant, which is super competitive and nobody ever makes any money doing it.
Then the other end of the spectrum, we have all of these fantastic tech companies that have been built in Silicon Valley. The example of a fantastic monopoly business is Google, which basically has had no competition in search since 2002 when it definitively distanced itself from Microsoft and Yahoo and is making enormous profits for the dozen years or so ever since.
You want to be in a monopoly. You do not want to be in the world of competition.
I think this difference is not understood for a variety of reasons. One reason for the misunderstanding is that people always distort it. If you’re running a monopoly, you normally don’t talk about it. You learn not to talk about it. You avoid talking about it by pretending that you’re in a much larger market. Google would never say that it’s a search engine. It would say it’s a technology company. It’s competing with Apple on cell phones. It’s competing with Facebook on Social, and Amazon, and Microsoft. It’s going to be competing with the car companies with its self-driving car. It’s in this big, big space called technology. There’s just competition everywhere.
Conversely, if you are running a super competitive business and you’re trying to raise money for it, you want to tell people some unique and differentiated story. If you’re trying to open a restaurant in Palo Alto and the investors tell you, “Well, I don’t want to invest in that because restaurants are bad. I will lose all of my money.” You’ll say something like, “This is a unique restaurant. It’s totally different from all the others. It’s the only British food restaurant in Palo Alto.”
Of course, that’s sort of a fictional submarket because it’s quite possible that there are no people who eat nothing but British food. You’re still competing with other restaurants, maybe even some in Menlo Park and maybe some in Mountain View because people might actually drive a few miles or something like that. It’s again, you tell a story where the market is fictionally too small.
The people who don’t have monopolies pretend to have them. The people who have monopolies pretend not to have them. The apparent difference is quite small. The real difference is really big. That’s intellectually why we don’t understand this monopoly question.
I think there’s also a psychological part of this as well though that’s very subtle but is very important to understand where we are taught that competition is valuable. There’s this safety in crowds, that if a lot of people are trying to get something, it must be a good thing to do. If there’s a long line of people waiting to get in somewhere, you just get in line. You don’t even ask why people are standing in line.
There is this psychology where in the time of Shakespeare, the word “ape” meant both primate and to imitate. There is something about human nature that’s ape-like, sheep-like, lemming-like, herd-like. We’re attracted to these things where a lot of other people are doing them. I think this is always a challenge with a lot of the ways we’re taught in school.
We’re taught to compete for all of the same credentials. If you’re on an athletic team in high school or college, you’re competing on things there. The competition has the effect of definitely making you better at that which you’re competing. If you spend years prepping for an SAT test, you will get better at taking the SAT test. If you’re on a swim team in high school, you’ll get better at swimming because you’re focused on beating the people around you. It always comes with this price of possibly losing sight of broader questions, of questions of what’s really valuable or what’s really important.
There’s a crazy line from Henry Kissinger, talking about his fellow faculty members at Harvard where he said, “The battles in academia are so ferocious because the stakes are so small.”
This always seems like a formula for insanity. Why would the battles be so ferocious? If the stakes are small, there’s no real need to fight. It’s just sort of describing mass insanity.
On another level, it’s describing the inner logic of a situation where if the stakes are small, if the differences are small, you have to fight much harder to differentiate yourself and the competition gets more and more intense.
And so we end up with these dynamics where everyone tries to go through the same tiny door when maybe there’s a huge gate just around the corner that nobody wants to explore.
I think that’s sort of the dynamic we’re always up against.
There is a version of this phenomenon in Silicon Valley where it’s sort of a strange way in which there are a lot of people who seem to have Asperger’s and they seem to do really, really well in all of these companies. I always think it should be turned around as a critique of our society. What does it say about our society that anyone who is well-adapted socially is talked out of all of their original ideas before they’re even fully formed?
They pick up all of these social cues from people. “That’s a little bit too weird. That’s strange. Nobody has done that before. Maybe you should not do this.” The people who are not able to understand what people around them are doing are somehow are able to explore some of these original ideas much further.
There’s this very strange set of studies that has been done at Harvard Business School. You think of business schools as consisting of the anti-Asperger profile of people. It’s people who are extremely extroverted, hyper-social, often don’t have any really strong convictions. I won’t make this too sweeping of a generalization.
You have a hot house environment where you put all of these people in one place for two years. Then you say, “What do they do at the end?”
It turns out that at Harvard, they’ve done these studies over 30 years now, at the end, the largest number always goes into the wrong field. They’ve taught themselves they’re all trying to ride the last wave. 1989, everybody wanted to work for Michael Milken. This was one or two years before he went to jail. No one was ever really interested in internet or technology businesses except ’99, 2000, just as the dot-com bubble was about to blow up. In the last decade it was all housing and private equity.
There is this really deep dynamic that even though rationally we should avoid competition and we should aim for monopoly, psychologically we seem to always find it much more comfortable to go with the large crowds of people. There is no wisdom in crowds. This is an anti Malcolm Gladwell thing. There is no wisdom of crowds. There is only really ferocious competition. Think about this really hard.
5. We’ve discovered most things already. If there are things we haven’t discovered. They’re super hard to figure out.
The second big picture contrarian thought. When I ask this question, tell me something that’s true, or how many great businesses are not being built, we’ve discovered most things. If there are things we haven’t discovered. They’re super hard to figure out.
I suggest this trichotomy of three categories of conventions, things that everybody already knows to be true, mysteries that are almost impossibly hard to figure out, and things that are in between which I call secrets, things that are hard to figure out, nobody knows yet, but if you work at it you can figure it out. It’s my claim that a secret or some idiosyncratic body of knowledge is often at the core of all of these great businesses. It’s something you’re very passionate about learning about.
In the case of PayPal, we were very interested in this question of cyber cryptography and currency on the internet. We had this fantasy about building the new world currency. This was our t-shirt. It really was this area we explored in tremendous depth. Then it did actually stimulate a lot of our thinking about how to build this payment system that ultimately worked.
We failed to build a new world currency. We did build a reasonably successful payment system. It’s this idea that there’s something you can figure out that other people don’t know yet. There are certain common sense ways in which this used to be the case that’s not the case anymore. If you were growing up inthe 17th or 18th century, you could look at a map and there would be some empty spaces on the map. You could say, “Well, who knows what’s there. I could become an explorer and find out.” It’s a hard thing to find out. It’s probably kind of dangerous to go there, but it’s a secret you can actually figure out.
In the 19th century you could do basic chemistry and you could discover new elements in the periodic table of elements. There’s a way in which obviously geography or basic chemistry are not places where there are any secrets left. The entire map of the world has been explored. Basic chemistry is done. These are closed fields. There is nothing new that you can learn in them.
I think it’s a mistake to extrapolate from that to all fields. I think there actually are many fields where there are some really interesting things left to be done. We obviously have all of the fields around information technology where people have explored a lot in recent decades — computers, internet, mobile internet, and that whole stream. I also think that we could be looking at many other areas of science and technology where I think the progress hasn’t been quite as fast, but it could have been faster. I think this is energy, transportation, bio-medical, all sorts of futuristic things people thought about in the ’50s and ’60s that haven’t been realized.
I think there is this self-fulfilling aspect of this. If you think there are no secrets left to be found, then you will not be the person to find them. If you think there are some to be found, you may very well be that person. There is something about the way in which globalization has led to a world of seven billion people where we always think, “Well, there’s somebody else who’s already thought of this problem, or it’s an impossibly hard problem.”
There’s a sense that the world is a very flat place where you’re not going to be the one to discover it. I think that’s sort of an intuition that one always should try to resist. The second somewhat contrarian idea is I think there are still many, many secrets left, and therefore there are many great things to be discovered, many great businesses to be built.
6. There will be two modes of progress in the 21st century — globalization (copying what works) and technology (discovering new things).
The third somewhat unconventional truth that I want to frame, and this one is a little bit of a bigger picture. I think that in the 21st century there will be two modes of progress. One I sort of describe is globalization, copying things that work, going from one to end, horizontal or extensive growth. I always draw that on an x-axis. The other one is technology, vertical progress, discovering new things, going from zero to one. I draw that on a y-axis.
I always put globalization on the x-axis and technology on the y-axis in order to underscore how these things are not synonyms, even though they get used almost synonymously and interchangeably all the time. China today is the paradigm of globalization. It has a very straightforward plan for the next 20 years. It just must copy things that work. The US, Western Europe, Japan can skip a few steps and can avoid copying some of our bad ideas. It’s just straightforwardly all about globalization.
I think when you look over the last 200 years, there have been periods of globalization and periods of technology. They’ve been somewhat different in character. The 19th century was a period of enormous globalization and technological progress. They sort of went in tandem. It came to an end in 1914 with the First World War. Globalization sort of started to go in reverse. There was less trade, less connections between different parts of the world. Technology kept going very, very fast.
I would argue after 1971 when Kissinger went to China, globalization started again in earnest.
In the last 40 or so years, I would argue we’ve lived in a period of somewhat slow technological progress where it’s been a lot in computers, not so much elsewhere.
Whereas the 19th century had both globalization and technology, the last 100 years have been characterized by first a period of enormous technological progress but less globalization, 1914 to 1971. Secondly, a more recent period, with lots of globalization but somewhat less technology.
These two different periods were characterized by very different ways in which we talk about the world. In the 1950s or 1960s, you would have described the world as consisting of the first world and the third world. The first world was that part of the world where progress was happening. The third world was that part which was permanently screwed up.
Today, we would talk about the developing and the developed world. The developing countries are those which are copying the developed world. This dichotomy of developing and developed is sort of a pro-globalization convergence theory of history where everybody will become more alike as globalization proceeds apace.
It is also a dichotomy that is somehow I find to be anti-technological. When we say that we’re living in the developed world in the US, western Europe, Japan, we are implicitly saying that we’re living in that part of the world where nothing new is going to happen, which is done, which is finished, which should be resigned to a long period of stagnation where the younger generation should not expect to be living lives any better than their parents.
I think this is a conception we should resist very, very strenuously. We should not accept this label that we’re living in the developed world. I think we should instead ask anew, how do we go about developing the so-called developed world?
Photo by: Thomas Leuthard