Course lectures "Startup". Peter Thiel. Stanford 2012. Activity 1

This spring, Peter Thiel, one of the founders of PayPal and the first Facebook investor, held a course in Stanford - “Startup”. Before starting, Thiel stated: “If I do my job correctly, this will be the last subject you will have to study.”

One of the students of the lecture recorded and laid out a transcript . In this habratopic I do the translation of the first lesson. If the post seems worthwhile - I will continue to translate and upload.

Lecture notes - Peter Thiel (course: CS183) Startup - Stanford, Spring 2012

Session 1: Future Challenge
Activity 2: Like in 1999 again?
Session 3: Value Systems
Session 4: Last Turn Advantage
Session 5: Mafia Mechanics
Lesson 6: Thiel's Law
Lesson 7: Follow the Money
Session 8: Idea Presentation (Pitch)
Lesson 9: Everything is ready, but will they come?
Lesson 10: After Web 2.0
Session 11: Secrets
Session 12: War and Peace
Lesson 13: You are not a lottery ticket
Session 14: Ecology as a Worldview
Session 15: Back to the Future
Session 16: Understanding
Session 17: Deep Thoughts
Session 18: Founder — Sacrifice or God
Activity 19: Stagnation or Singularity?

Session 1: Future Challenge

The purpose of the course. Preamble.

We could describe our world as a world in which common sense is sold at retail, and stupidity in bulk. Details are clearly visible and described, but there is no forest behind the trees. The fundamental challenge, both in business and in life, is to bring together the general with the particular, so that the picture is formed, and there is a sense in it.
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Humanities students learn a lot about the world, but they do not gain profound professional knowledge. Technological experts, on the contrary, know a lot of details, but they are usually not taught how and why to apply their knowledge. The most advanced will try to put everything together to get a complete picture. This course is designed to facilitate this process.

1. History of technology

In the period from the invention of the first steam engine in the 17th century to the end of the 60s of our century, technical progress was simply stunning. In early human communities, people could get rich by taking values ​​from others, while the industrial revolution led to a paradigm shift, now money is being made by trade, not robbery.

The significance of this shift is difficult to overestimate. In all, about 100 billion people lived on earth. Most of them lived in stagnant societies, where success was ensured by the seizure and retention of values, and not their creation. Thus, the significant technological acceleration of the last few hundred years is simply unbelievable.

Top of optimism about the future of technology came in the 60s. People believed in the future, thought about the future. Most of them were confident that the next 50 years would be a period of unprecedented technological progress.

But, with the exception of the computer industry, this was not the case. Per capita income is still increasing, but the growth rate has slowed down a lot. The average salary has hardly changed since 1973. People seem to be in a situation similar to the situation in Alice in Wonderland, where they have to work more and more to at least stay in one place. The slowdown has a complex structure, and you can’t naturally explain it with data on wages alone, but all this only confirms the idea that progress over the past 200 years has slowed down too quickly.

2. About computer science (Computer Science)

Computers were the happy exception in the process of slowing down technical progress. The laws of Moore / Cryder / Wirth predicted, and perhaps were the cause of long-term uninterrupted growth. Computer technology, with constantly improving equipment and flexible development methods, is something of a role model for other industries. They seem to be the core of the Silicon Valley ecosystem and a key factor in changing modern technologies. Thus, computer science is a stumbling block in order to return the reins to the hands of progress.

3. Future progress

A. Globalization and technology: vertical and horizontal progress

Progress is of two types: horizontal (extensive) and vertical (intensive). Horizontal progress is widespread replication of successfully working technologies - “globalization”. Let's think about how China will be in 50 years. I bet it will look about the same as the United States now. Cities will be copied, cars will be copied, rail systems will be copied. Maybe some steps will be skipped, but it’s still copying.

Vertical progress, on the contrary, means the creation of something new - new “technologies”. Such progress implies a movement from 0 to 1 (unlike the movement from 1 to N during globalization). Most of the technology of vertical progress came to us from places like California, in particular from Silicon Valley. There is every reason to doubt that there is enough technology. Indeed, most people seem to be almost entirely focused on globalization instead of technology. Speaking of "developed" as opposed to "developing countries", we mean the technological aspiration of the second to what the first achieved. As a society, we seem to believe in the end of the history of technology.

It is worth noting that there is a definite connection between globalization and technology, and we should not completely separate them. Let's take a look at the limitations of the scaling task from 1 to N. Everyone cannot follow a car - this would lead to an ecological disaster. If the movement from 1 to N is impossible, the problem can be solved by moving from 0 to 1. Technological development is thus extremely important, even if globalization is in the first place for us.

B. Motion problems from 0 to 1

Maybe we are so fixated on moving from 1 to N because it is easier. Without a doubt, the task of moving from 0 to 1 is qualitatively different. It is much easier to copy something N times than to create something from scratch. Any attempt to make vertical progress is an exceptional task. Each inventor or founder of a startup should think carefully before proceeding.

Let's draw an analogy with politics. The United States is often perceived as an “exceptional” country. At least many Americans think so. Well, so, in your mind the United States or not? Everyone has a weapon. No one believes in global warming, and most people weigh 600 pounds (approx. Lane - so in the original). Of course, “exclusivity” can be seen from the other side. America is a country of opportunity, an outstanding country. There are good conditions for any undertakings, and the ability to determine whether you will achieve success and prosperity. Regardless of which side you stick to, you must fight the idea of ​​"exclusivity." Every year, about 20,000 people who consider themselves extraordinarily gifted, go to Los Angeles to become famous actors, and only some of them really succeed. The startup world is probably less than Hollywood infected with the idea of ​​"exclusivity", but here, too, this idea has not been completely eradicated.

B. Problems of education and the use of experience of successful companies

Speaking about learning vertical progress or innovation, we run into an internal contradiction. Education, fundamentally, teaches movement from 1 to N. We observe, imitate, repeat. Infants do not invent a new language, they study the existing one. From the very beginning we are learning to copy what is already working.

But for startups this is not enough. I think education gives about 30% of what is needed. (Although it is certainly necessary to, for example, register your rights or interest venture investors). At some point, you will need to make the transition from 0 to 1, and you will need to do something very important and do it right, but this is something that you will not teach. Like Tolstoy in Anna Karenina, all successful companies are different: each of them solves the problem of transition from 0 to 1 in its own way. At the same time, all companies-losers are similar: they could not go from 0 to 1.

Thus, the study of cases and the experience of successful companies is rather limited. PayPal and Facebook work, but it’s very difficult to separate the general principles from their personal specifics. The next big company will most likely not be an electronic payment company or a social network. Very little can be learned from any one success story. Hence, the situational teaching method used in business schools is not an aid for us here.

D. Pattern or unpredictability

One of the most difficult issues of progress is the question of assessing the probability of success of an enterprise. In the “from 1 to N” paradigm, this is a statistical question. You can analyze and make predictions. In the case of “from 0 to 1,” the question is outside the scope of statistics, since the standard deviation for a single sample is infinity. Statistical analysis does not help us here, statistically we are in complete darkness.

We are used to estimating the future with the help of statistics, and in this case it tells us that the result is random. No, we cannot predict the future, we just think about the future in terms of probabilities, and if the market behaves unpredictably, does it make sense to try to figure it out?

But there is another mathematical metaphor that we can use - calculations. Calculations allow you to answer questions about what, how and when should happen. Take, for example, the NASA Apollo program. You need to know exactly where the moon will be at what time and whether there will be enough fuel in the spacecraft, etc. The truth is that, probably, no one would like to fly on a ship, the flight of which would be calculated statistically with a certain probability.

In this sense, startups are like a space program. The transition from 0 to 1 is still more predictable. But there is another problem - the so-called "prophets". In our society, all the prophets are false prophets. Steve Jobs found his way between predictability and unpredictability, people felt that he was a visionary, but did not go too far. He moved very close to the edge (and succeeded accordingly).

The question of the ratio of luck and work is also important. Accounting for these factors is complex, and may be impossible at all. Attempts to do this can get you far. Perhaps the best thing we can do about it now is to mark this question for ourselves. Probably every novice entrepreneur should figure it out himself and draw his own conclusions for himself.

E. Future of technological progress

There are four theories about the future of progress. The first of these is the theory of convergence, which asserts that, starting from the period of the industrial revolution, there will be rapid growth, then growth will slow down, and, in the end, will approach some asymptote.

The second is a cyclical theory. Technical progress develops cyclically: first takeoff, then fall. And so in a circle. Most likely, in the past everything was like this, but it is difficult to imagine that everything will continue the same way. To lose all information, all inventions and know-how, and then rediscover it all again is hard to believe.

The third is the theory; this is the theory of collapse / destruction. The idea is simple: some technology will destroy us.

The fourth theory is the singularity theory, according to which technologies will evolve into something like artificial intelligence.

People usually tend to overestimate the likelihood and explanatory power of the convergence theory and the cyclic theory and, accordingly, underestimate the theory of collapse and singularity.

4. Why companies?

Why are the companies best suited for technology development? One can imagine a society in which everyone works for the government, or, on the contrary, everyone works for himself. Why is some intermediate version better, where there are more than 2 people, but less than all the people on the planet?

The answer comes down to the Coase theorem. Companies exist because they have the optimal ratio of costs for external and internal interaction. Roughly, the larger the system, the higher the costs of internal coordination, and, conversely, with the increase in the size of the company, the costs of external coordination fall. The totalitarian government is an example of a very large system. The costs of external interaction are insignificant, they are practically zero, while the costs of internal coordination, as shown by Hayek and other representatives of the Austrian economic school, are significant. Central planning does not work.

The downside is zero costs for internal interaction in a person who works for himself. And, on the contrary, external costs are extremely high (the person is forced to communicate with everyone himself), which practically paralyzes the activity.

5. Why startups?

A. The issue of costs

The magnitude and ratio of internal and external costs are very important. If the company has more than 100 employees, people often do not even know each other. Politics becomes important, motivation changes. Often, the information that the work is done is more important than the work itself. Domestic costs are often underestimated. All this is important, so investors seriously think about it before investing in companies with several offices. It would seem a trifle, but even companies with offices on several floors may have serious coordination problems. Hiring consultants, outsourcing key projects, and similar phenomena are also the red flag. And although in the past 40 years there has been a tendency to reduce costs (which has led to some reduction in the size of companies), this factor is often underestimated. While the costs are high, they should be considered.

The social network Path, for example, limits the number of friends to the 150th. The ancient tribes, obviously, also did not greatly exceed this number. For startups it is important to be small. The cost and complexity of internal interactions is approximately equal to the square of the number of employees. Thus, startups are in a unique position and their small size, in particular, helps them to finish the job.

Austrians familiar to us explained this as well. Even if a computer could simulate all the narrowly economic problems that a company faces (in truth, it cannot yet), this would not be enough. To account for all costs, a computer must take into account human irrationality, feelings, emotions, and all interactions. Computers can help, but they still give out limited information. In short, today we are forced to deal with companies of a certain size - this is a given.

B. So why startups?

The simplest answer to the question “why startups?” Will come from the opposite: because it is impossible to create a new technology in existing organizations. Something is wrong with large companies, government agencies and non-profit partnerships. It may be difficult for them to recognize financial needs: the federal government, immersed in its own bureaucracy, often pays excessive attention to some areas and insufficient attention to other areas of its activities. Or it’s difficult for these organizations to recognize the personal needs of employees: it’s very difficult to get recognition, respect and fame in a company with a high bureaucracy. The transition from 0 to 1 can be made only if everyone around also wants to make this transition. This is in startups, and this is not the case in large organizations and government agencies.

Starting a startup for the money is not a good idea. Studies show that a person becomes happier, getting more money, only up to $ 70,000 a year. With a further increase in income, factors such as stress, working hours, etc. become more important. And simply, the marginal utility of money gradually decreases even in the absence of aggravating factors.

It may be better to create startups to become famous or to get into the annals of history. I think no. To be or not to be famous is a very controversial question, everyone has their own answer. The best motive is still the desire to change the world. United States in 1776-79 were a startup. What was the motive of the founding fathers? There is also a significant cultural aspect in the matter of motivation. In Japan, for example, taking high risks is considered reckless. Lifetime employees of a company are held in high esteem. There is also a doubt that figuratively can be described as follows: "for every major success lies a terrible crime." Were the founding fathers criminals? Are successful entrepreneurs criminals?

V. Price Failure

In startups, they pay less than when working for large companies. Starting a startup, or joining it you need to be prepared for some financial losses. It is usually thought that the difference is significant - it is not, it is small.

Non-financial losses are much higher. If a startup fails, it can turn out bad for you. You can learn how to fail start-ups, you can become inclined to take risks. You are not a lottery ticket, so do not think about failure, as just another attempt to create a company. The stakes here are somewhat higher.

Start-ups from 0 to 1 require low financial and low non-financial costs, but at least you will learn a lot of new things, and this is probably worth the effort. On the other hand, startups from 1 to N, where financial investments are even lower, but higher than non-financial ones. If you try to make Groupon for Madagascar and all fail, it is not clear what you will gain. And this is not good.

6. Where to start

The path from 0 to 1 can be started by answering three questions. First, what is the value of innovation? Second, what exactly can I do? And third, is it already someone else?

All questions, as they say, to a point. The first question illustrates the differences between the business and the scientific world. In the scientific world, sin number one is plagiarism, not banality. Most of the innovations there are things in themselves, and may be completely useless. In business, it is not so: no one needs a result that has no value. The second question allows you to make sure that you can really solve the problem, and this is not empty chatter. And thirdly, this is often forgotten, it is the importance of being a pioneer. If not, we will be just imitators copying others ...

You can redefine these questions and put them into one: “What is your truth that only a few agree with?”, Or the business version of this question: “What valuable company has not yet been created?”.

These are hard questions, but the answers can be checked. If, as is often the case, someone answers something like this, “our education system is destroyed and requires immediate repair,” it is clear that the answer is incorrect (this is true, but many will agree with this). This only explains why so many educational start-ups and non-profit organizations appear, but, for most of them, it is not clear whether they have anything to do with technology or globalization. You are on the right track if your answer is as follows:

"Most believe in X, but true! X"

Make no mistake, this is a difficult question. Understanding that the effort spent on moving from 0 to 1 is worth it is unique, and the process itself, not to mention the result, can be simply invaluable, and indeed profitable to the same.

From the translator:
I ask translation errors and spelling in lichku. I also remind you that this text is a translation, its content is copyright, and the author’s opinion may not coincide with mine.