Course lectures "Startup". Peter Thiel. Stanford 2012. Session 5

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 case, 9e9names translates the fifth lesson. Astropilot Editor)

Session 1: Future Challenge
Activity 2: Again, like in 1999?
Session 3: Value Systems
Lesson 4: The Last Turn Advantage
Session 5: Mafia Mechanics
Activity 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
Session 19: Stagnation or Singularity?

Lesson 5. Mafia mechanics

Stephen Cohen, co-founder and vice president of Palantir Technologies, and Max Levchin from PayPal and Slide joined the lecture as guest speakers. Thanks for the good stuff to them and to Peter. I tried to be precise. However, please note that this is not an exact transcript of the conversation.
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I. Corporate Culture

Everyone knows that corporate culture is important. However, it is difficult to know for sure which things make up an ideal culture. Obviously, some of them work exactly. Even if at the moment investments in corporate culture do not seem to be a good investment, then look, for example, at the Microsoft team at the time of its formation — after all, they were right about something.



There are, of course, those things that do not work. For example, the formation of a cult is a textbook example of a poor approach to corporate culture. Cults are insanity and bare idealism in the worst sense of these words. People who support the cult, as a rule, are fanatical and that is why they are mistaken in the main thing.

And sometimes there are examples of what can be called "anticulture", that is, the lack of culture at all. Consulting firms can serve as a classic example of such a path. Unfortunately, the lack of culture is the situation prevailing in most firms. Most of their existence, they do not even have any cultural basis. People-mercenaries. Employees nihilists.

Imagine a one-dimensional axis from a nihilist consultant to a reverent dogma. You would probably want to be somewhere in the middle on this axis. If you consider the extreme points, then you would rather be closer to the adherents of the cult, rather than join the army of consultants.

There are more nuances in building a good corporate culture than in simple homogeneity or heterogeneity. In the homogeneity paradigm, it is not enough that everyone is just alike. A sustainable corporate culture is one in which employees have something in common that distinguishes them quite sharply from the rest of the world. Those. if everyone likes ice cream, this is not an appropriate example. If key employees share a unique philosophy that touches on important aspects of activity, then this already means something.

Similarly, the differences in themselves do not matter much. In a strong corporate culture, methods for achieving key goals are different. Suppose that one of the important employees is on a diet consisting only of ice cream. This, of course, is rather peculiar. But it does not matter. The goal is for your employees to lead the company in different ways to its uniqueness and be closely linked by a common mission. For example, a team in which people work with different approaches to solving problems can build a stronger corporate culture.

II Zero amount versus non-zero amount

(Note. Translation: in this part of the narrative, the author uses the concepts of the mathematical theory of games "zero sum" and "non-zero sum." It is difficult to find a Russian analogue so that phrases like "non-zero-sum person" sounded good. moment I saw the use of the words "lack of interest" and "interest", respectively. However, after discussion with the editor, we came to the conclusion that it is better to leave the literal translation. read more about the difference between zero-sum games and non-zero-sum can be read in the article about eoriyu games )

A. To fight or not to fight

Generally speaking, capitalism and competition are better viewed as antonyms rather than as synonyms. Competition is not what you should do. This, of course, does not mean that you should mess around. On the contrary, to succeed, you need to work hard. But you must do what others do not. Thus, you need to focus on the ideology of a non-zero amount.

Sometimes, however, you need to compete. Monopoly is the non-material ideal to which you should always strive. But you will not always be able to remain in an uncompetitive environment in an environment replete with the benefits of the world. With a high probability, you can be in a competitive environment, i.e. in a zero-profit situation. You must be ready to handle such competition.

Gandhi is a great historical figure. He had many virtues. However, he is definitely not the best adviser for a startup. Consider the following quote:

If [Hitler and Mussolini] occupy your homes, you will want to leave them. If the invaders do not let you leave freely, you should be ready to sacrifice yourself, whether you are a man, a woman or even a child, but you will not swear allegiance to them.

The main message voiced in this statement is: letting the enemy kill you, you will demonstrate your superiority over him. You should not follow this advice if you are going to start your company. You must try to avoid a fight, but if she is ensuing, you must fight and win.

B. Creators or fighters

Reflecting on building a good corporate culture, it will be useful to consider two types of personality, which are extremes - “nerds” and “sportsmen”. Engineers and generators of ideas, as a rule, are very smart, do a good job with solving problems and, of course, contribute to the common cause. And athletes, as a rule, are fighters with strong motivation, they act on the principle "only in that case you win if the other guy loses." Sport can be seen as an example of classical competition, with its inherent hostility and antagonism. Sometimes, as in the case of martial arts, sport literally turns into a fight.

Even if we imagine a situation where all the employees are competent in the technical field, it’s all the same if the company consists only of “athletes”, its activity will aggravate to the conditions of competition. Athletes love competition because, historically, they are very good in it. Therefore, they will look for areas where competition is great, and go straight into the inferno.

The problem of the company, consisting exclusively of "nerds", is that they will ignore the fact that in some situations one cannot do without a struggle. As soon as such a situation arises, the “nerds” will collapse because of their naivety.

So, we want to keep the right balance between "nerds" and "athletes." Neither of the poles is optimal. Imagine a square coordinate system with dimension 2X2. On the y-axis are employees with a zero amount and employees with a non-zero amount. On the x-axis, there is a hostile, competitive environment (for example, eateries of Indian cuisine on Rue Castro or art galleries in Palo Alto), and then a peaceful, monopolistic / capitalist environment.

Most startups are managed by people with a non-zero amount. They believe that the world is a cornucopia. This is good, but even these people sooner or later come to the battlefields for the sake of competition, because they do not know a better way. They are drawn into the carnage itself. But the “nerds” do not themselves realize that they decided to participate in the war until it ends.

The optimal position in the constructed coordinate system is a monopoly with some specially selected combination of participants with zero and non-zero sum. You must strive to the situation where you do not have to participate in the fight. However, you must have some good fighters in order to protect your non-zero employees and defend your goals, if necessary.

C. Investor strategies

Founders Fund is quite a picky investment company. There are many different types of companies in which she will never invest. Participants developed about 20 or even more dogmas, each of which is presented in the form: “Never invest money in x”, where “x” can be mobile Internet, “green technologies” and others. Sometimes it seems that there are so many of these rules that there is nowhere else to invest.

However, despite the spirit of contradiction inherent in the company, some time ago, investors decided to try a new strategy: to identify the best company in each field of activity, from the “never invest money” stipulated by the rules and invest in it. In fact, such behavior would be better suited for a speculative experiment than for a real strategy of action. But the strategy helped to draw attention to an interesting company engaged in the development of "green technologies", which otherwise would have gone unnoticed. Severe competition has been developed in this area, and none of the participants makes a real profit, but this company looked particularly attractive. It was headed by scientists. They were great engineers and great technology. All participants were passionate supporters of a common mission. Negotiations on investment conditions were already in the air.

But then all the skeletons in the closet opened. It turned out that the founders and employees only have 20% of the company's shares, while 80% of the shares are with other venture investors. At that time, the company was estimated at $ 35 million, as it was still at an early stage of development. Share capital was more like a mistake than something revolutionary. The question “What the hell is going on here?” Sounded in various ways. The response from the founders was rather careless: "We are engaged in the development of technology and are not particularly interested in capital." It is quite noble. But, in fact, it's pretty lousy. Inevitable questions ruined the deal: with such passivity, what are you going to do with your competitors? Can you organize a sales team? If you cannot explain this to investors, then how are you going to stand against the rest of the world?

III Discussion with Stephen Cohen and Max Levchin

Peter Thiel: You guys set up your own companies. And you have seen what works and what doesn't. Tell us a little about it. How do you build a corporate culture?

Stephen Cohen: Palantir is engaged in analyzing platforms commissioned by government customers. But from the very beginning, the founders of the company understood that they were going to create products for ordinary corporate clients. Since building such a business takes a long time, they realized that they need to find really brilliant specialists who will work together in the long term. It was clear that the issue of hiring specialists was crucial from the moment of the first day of work.

This early understanding became the basis of the three essential characteristics inherent in all companies with a good corporate culture. First, the company must have very talented employees. Secondly, they should be long-term oriented. Thirdly, the company must have a constant spirit of invention, when people are constantly creating something new. From this point of view, it becomes more clear what people you should look for people who will contribute to the manifestation of these three characteristics. Corporate culture is such a superstructure, which determines the choice and redistribution of energy of employees in the right direction.

A common mistake many make is to assume that the corporate culture itself creates the above characteristics. Look at the slides about Netflix’s corporate culture. It seems that you can cultivate a talent in an employee without talent, or that you can take someone who is focused on the bottom of today, and transform his views on understanding the long-term perspective. But no, it is impossible. Corporate culture alone can do more harm than good. It can reflect and enhance these three properties. But she cannot create them herself.

Understanding this, one can conclude that hiring employees is critically important. People whom you did not hire mean more than people whom you hired. You may think that the mistake of hiring the wrong person means nothing, because later you can always just dismiss him. However, such a meritocracy in the spirit of Stalin sucks. Yes, of course, you can put a bullet in the back of the head to an unsuitable employee. However, the problem is that you have to do it.

Peter Thiel: One of the first goals of PayPal was to “never fire anyone.” The founders simply hired their friends because they could trust them. However, in the end, they had to hire more and more people, among whom they knew less and less. They hired a system administrator from the side. He had problems from the very beginning: on the very first day he appeared at work only at six in the evening. Worse than his lateness, there could only be a lack of personal hygiene. Almost immediately, people working with him began to express objections, but the rule of the founders of “no one is dismissed” caused the unrest to subside. After a couple of months, PayPal collapsed. At the same time, the sysadmin did not make any backup copies. At that time, he still understood how PayPal works. Fortunately, one engineer in the work went beyond the scope of his official duties, and decided to secretly make backups every day. The order was restored, and the sysadmin was dismissed. The rule “no one is dismissed” still reflects the correct vector of development: dismissing people is like a war, war is bad, and you should avoid such a development. But there is a downside: if you wait too long, then as it is obvious to everyone around you that someone needs to be fired, it may be too late.

Max Levchin: The notion that diversity in an emerging team - this is important or good - is fundamentally wrong. You must first form a team as unanimous as possible. There are several reasons for this. The most significant of these is that startups are under-funded and lacked employees. This is a big drawback: not only can you run into trouble, but you can not even know in advance what kind of trouble it will be. Speed ​​is your only weapon. All you have is speed.

How to ensure proper speed? If you are alone, then you just need to work very hard and hope that this will be enough. Since this is rarely enough, people begin to form teams. But the team has the problem of communication, its complexity increases as n in the square. For a team of 5 people, there are about 25 paired relationships that need to be maintained and managed. The more diverse the people in this group, the more difficult it will be for them to find a common language.

The first PayPal team had four people from the University of Illinois and two from Stanford. There was one Jew from Russia, one boy from Asia and a bunch of white guys. But that didn't matter. What mattered was that their basic views did not contradict each other. They were all nerds. They all had an excellent education (the guys from Illinois also graduated from the computer science department). They read science fiction. And they knew how to build software products. It is interesting to note that they did not know how to create these products correctly. It turned out that PayPal will have problems with scaling, because those 26-year-old guys who managed the data of hundreds of thousands of credit cards chose not the most optimal solutions from the very beginning. However, they achieved great clarity in their communication from the very beginning. They had no debates about the design of their first database. And only this allowed them to do what they did.

Too early striving for optimality - a discussion of the pros and cons of various design solutions in detail - would have ruined PayPal. When system problems became urgent, the communication in the team was established so well that the correction of these problems was carried out in a very short time. The team continued to hire Illinois and Stanford alumni. They focused on the already built network. And everything turned out. But only because there is no disagreement.

Once PayPal refused the candidate, despite the fact that he passed all the engineering tests perfectly, after he said that he likes to play hoops for fun. Because of this one phrase, he lost his job. None of PayPal has ever used the word "hoops". Probably no one even knew how to play with them. Basketball would be enough for failure. But hoops? This guy obviously did not fit the company. He would have to explain to the team why he is going, for example, on Thursday evening to play hoops. And no one would understand him.

PayPal also had a hard time recruiting women. An outside observer would have thought that the guys from PayPal had bought into the stereotype that women did not understand computer science. But this is fundamentally wrong. In fact, PayPal had problems hiring women, because the PayPal team was a bunch of “nerds”. They never talked to women. How can you imagine that they will interact with them and take them to work?

There is one good recruitment rule: whenever there is any doubt, in fact there is no doubt. This is a good evaluation criterion. In most cases, any doubt excluded the possibility of taking a job. But one day a woman came to the interview, who made a strong impression. There were some doubts, as she did not really want to solve coding problems. But her speech and behavior — she, for example, offered to conduct an interview while playing table tennis — demonstrated that she fits into the culture of “nerds” and “red-eyed”. Well, she really played table tennis well. Doubts were suppressed. But it turned out to be a mistake. She did not understand the code at all. She was a competent manager, but did not fit into the culture. PayPal is a place where young engineers could (and sometimes resorted to this) fight with each other on the floor, defending their decisions in disputes. If you did not fit into this strange formula - “red-eyed botanists plus alpha males” - then you were left behind.

Stephen Cohen: Good stuff shows itself. Talent manifests itself. Although he does not talk about himself. You must develop a sixth sense in yourself to bring out such talents. Look at what people show you, instead of listening to what they tell you. Cling to any doubts you find. This is not personal. Never let the interview process go into the realm of personal interaction. This happens when you just listen to the candidate. Do not ask yourself what you think about what the candidate says. Just imagine the person you are interviewing at work. Imagine how he will behave after you hire him. How will it look like?

It is also important to screen out personal prejudices. For example, many programmers are dogmatic in terms of syntax. Everything should be located in a strictly defined order, and nothing else. Maybe someone does not like refactoring methods or something else. But these are all personal addictions. None of this makes a person a good engineer. So these are not the issues that should be focused on. The main question: what are these people? Pleasant appearance has nothing to do with how good they are. The most talented of them are almost always quite peculiar in appearance. You must see this distinctiveness and accept it. There is nothing stranger than seeing a weird person criticizing another weird person for having too many weird things.

A concrete example is the predilection for the obviously unfashionable style of clothing. You should not judge people by how chic their clothes look; quality people do not always wear quality clothes. You can even summarize: great engineers do not wear designer jeans. So, if you have an engineer at the interview, take a look at his jeans. Of course, exceptions are always possible. But in general, this criterion is surprisingly good.

Max Levchin: Members of the management team at PayPal often had incompatible views. Meetings of managers proceeded without understanding. Board meetings were even worse. But these meetings were certainly productive. Decisions were made and implemented in life. But, nevertheless, if someone deserves to be called an idiot, then it is voiced.

Next time, in Slide, we tried to create a more pleasant environment. The idea of ​​meetings where people would actually be pleasant to each other seemed great. But it was insane. The mistake was that we confused anger with a lack of respect. Smart and energetic people often get angry. Not usually at each other. Rather, they are angry that “something is wrong”, i.e. that they are forced to solve problem x, whereas they would like to work on a more serious problem, y. The disharmony in PayPal was actually a side effect of a very healthy dynamic.

If some employees complain about others behind their backs, then you have a problem. If people do not trust each other to do important work, then you have a problem. However, if employees are confident that their teammates will meet their expectations, then you are fine. Even if they all call each other idiots.

The danger comes when you become soft. It’s quite difficult not to soften when you are working out the subtle moments. Soon you start spending more time thinking more about how good people are as people, and how skilled they are. This is death like. If you think that an A- or B ++++ employee can become a key figure A, thanks to his personality traits, then you are an idiot. Everyone else in the organization already understands that you have become soft-bodied. They do not respect non-leading players. And they, of course, will not respect you.

Even when employees knead each other on the office floor, if you ask people at PayPal to respect each other, the answer will be obvious. For a long time, everyone believed in each other. In Slide, everything was different. There, a refined passive-aggressive lack of respect was cultivated for a long time. . - . . . . , , . , , . . , . , , , .

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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.

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