Course lectures "Startup". Peter Thiel. Stanford 2012. Session 12

In the spring of 2012, Peter Thiel ( Peter Thiel ), one of the founders of PayPal and the first investor of Facebook, 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, astropilot translates the twelfth lesson.

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
Activity 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?

War and Peace

Reed Hoffman , LinkedIn’s co-founder and partner at Greylock Partners (one of Silicon Valley’s top venture capitalists), joined the guest session as a guest. All thanks for the good stuff to him and Peter. I tried to be precise, but keep in mind, this is not a verbatim transcript of the conversation.
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I. External war

Anyway, but we all well know what war is. The United States has been waging the war on terrorism for more than ten years. We also wage more prosaic wars against poverty, cancer, and drugs.

But most of us do not spend much time thinking about why a war begins. When is she justified, and when is she not? It is important to understand these questions in different contexts, because the answers to them are often relevant to startups. The background of this question is a constant value: how to avoid destructive actions and more often perform effective and productive actions?

A. Theater

Often the war begins as a performance. People threaten each other. Governments of different countries send rockets at each other. States begin, as obsessed, to copy each other. And here we come to the space race (competition of the USSR and the USA in the middle of the twentieth century and further in the development of space technology). There was also a tense geopolitical situation, when Fischer played with Spassky for the world chess championship title in 1972. Then another miracle happened when the USA 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 representations do not seem dangerous, they seem amazing. In a sense, the entire Cold War was essentially a theatrical performance - instead of battles and battles, it was just a state of incredible tension, rivalry and competition.

In a sense, both 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 so heated that there is even some awkwardness when the rivalry stops. The space race ended in 1975, with the launch of the joint Soviet-American pilot space project Soyuz-Apollo. Neither side 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 the situation when a physically weak guy pumps muscles and beats a bully, who used to constantly bully him.

B. Psychology

But this example illustrates not only the motivational aspect of war. When people behave short-sighted and focus only on war, they see nothing but it. They become like their enemies. A skinny nerd pumps muscles and becomes a bully like the one he always hated. The working theory is that you must carefully choose your enemies, because soon you will become like them.


“Hey, goner, you have ribs sticking out!”

This is a psychological counterweight to the economic discussion that we held in the third and fourth sessions. In the world of ideal competition, no one makes a profit. Economic profit is supplanted by competition. But the economic version of competition is just a snapshot. He illustrates the problem, but does not explain why people still want to compete. Kissinger quotes that “the battles are so fierce because the stakes are so low.” People participate in fierce battles for crumbs. But why? To decipher 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 escalates, opponents become more and more similar to each other. In many cases, the situation goes beyond theatrical performance and goes into a stage of total destruction. The loser loses everything. And even the winner can suffer heavy losses. It happens all the time. Therefore, we must ask: how often is all this justified? Does it make sense even in some situations? Is it possible to avoid all this?

C. Philosophy of conflict

There are several competing paradigms from which people view conflict. One of them is the Karl Marx version. Conflict exists because people hold different views on the same thing. The more differences of opinion, 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: the 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 the opposing participants look the same. It is clear why they are fighting with each other. Recall the prologue of "Romeo and Juliet":

Two noble names, equal to
Venerable, they lived in Verona ...

Two last names, equally respectable. However, they seem to hate each other. The plot develops very dynamically, and they increasingly become similar to each other in the process of struggle. They no longer care what their struggle began. Recall Hamlet:

He, fortified with proud ambition,
Laughing at an unknown outcome
They started the case, what is transient
Gave the risk and fate
For egg shell. Greatness,
Worthy is the ability
On a feat without a reason; if business
It goes about honor, then for quarrels
Do not need a reason - enough stuff.

In order to be truly great, you must want to fight for reasons no more significant than the eggshell. Anyone can fight for important things. Real heroes are fighting 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 war

A. The Past is a Preface

So which paradigm is right in the technology world? How right is Marx or Shakespeare?
In most cases, of course, Shakespeare is right. People become obsessed with their competitors. Companies are approaching similarity. They squeeze out of each other all the juice as a result of increasing competition. And each of the parties loses the ability to see the main thing.

Take a closer look at the computer industry of the 1970s. At that time, the dominant company was IBM. However, there were several other players, such as NCR, Control Data and Honeywell. Please note that these firms have long been common names in the world of computer technology. At that time, all these companies were trying to develop their mini-computers that could compete with IBM machines. The computers of each company differed slightly from each other, but conceptually they were quite similar. As a result of their short-sightedness, these companies have completely missed the chances of winning the fight for the microcomputer. IBM has managed to develop a microprocessor and has overshadowed all competitors with the value of its invention.

The harsh version of this war in the 90s was a harsh battle in the market of online stores of goods for animals. Participants of the battle: Pets.com, PetStore.com, Petopia.com and about 100 other online stores. The inner message was an absolute struggle to dominate the online pet products market. How was it possible to defeat the enemy? Who could afford to advertise during the Super Bowl? And so on. Players have completely lost their vision of the external question of whether it was necessary at all to be in the market of online stores selling products for animals. The same situation was with Kozmo, Webvan and Urban Fetch. What mattered was only victory. The external question, which was really important and sounded like “Is this war worth fighting?” Was simply ignored.

And such a pattern of behavior you can find everywhere. Especially funny is the example of the Oracle war against Siebel. Oracle was a large database software company. Siebel was founded by one of the top salespeople from Oracle, so the development was dangerously imitating and highly competitive from the very beginning. Siebel tried to imitate Oracle literally everything, even the design of offices. It began as a theater, but, as often happens, crossed the line. What begins as a theater often ends badly enough.

At some point, Oracle developed an interesting attack plan. Siebel didn’t have room for a large billboard in front of the office. Oracle rented a large truck and set it in front of the entrance to Siebel Headquarters. On this truck, they placed a variety of ads that ridiculed Siebel to lure their employees. But in 2005, Oracle bought Siebel. Most likely, at this very moment they got rid of that truck.

Wars of announcements are not just bad jokes. They are largely indicators of how companies thought about themselves and the future. In the 90s, Informix started a billboard war with Oracle. Informix installed a sign near the Oracle headquarters after house number 101, which read: “You just went through Redwood Shores. And we, too. ”(“ Passed ”- in this context also“ overtaken ”,“ surpassed ”).
Another bolbord with the sign "Carefully, give way to dinosaurs" was installed in front of the Oracle towers.




Oracle responded by launching a large advertising campaign that used snail images to showcase the results of Informix TPC benchmarking. Of course, advertisements were not some kind of novelty, but what was really strange was that they were not addressed to customers, the 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 exceed you in size to be able to defeat you. But it should be big enough to impress the rest. The formula is: theater + motivation = productivity. The disadvantage of such a strategy is that the creation of fake enemies to motivate others often leads to the emergence of real enemies that can destroy you. Informix itself collapsed in 1997.

B. The End of Today's Business Model Before It Comes

Shakespeare's model turns out to be true today. For example, Square card reader. Generally, Square is the first company to correctly process credit card processing using mobile devices. They developed both a software and hardware component, and created a brand for this already 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 idea of ​​the reader in the form of a simple geometric figure. But they tried to beat Square - 3 sides, after all, were simpler than 4.

Before PayPal PR people celebrated their victory, Intuit appeared with its card reader. It was shaped like 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 this geometric forms 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 persistent feeling that companies directing their efforts at copying 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 area.

C. Even the big boys do it.

Not only startups cause competition for imitation. The rivalry between Microsoft and Google, although not fully destructive, is largely based on Shakespeare's dynamics. In a sense, they were doomed to war from day one, 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, one might say, raised this chip to a new level. But Microsoft and Google also started very differently. At first, they generally engaged in 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?

Promoting tape for 12 years ahead. Now we see another opposition - Bing search engine from Microsoft against Google search engine and Google Chrome browser against Internet Explorer browser. Now Microsoft Office can compete with Google Docs. Currently, Microsoft and Google are direct competitors in several key areas. We can guess why: each of these companies was guided by an internal message in which they simply had to bypass a competitor, since they could not afford to give an inch. Microsoft just needed to develop a search engine, and Google - Docs and Chrome. But is it right? Or maybe they just fell victim to the dynamics of imitation of each other and just obsessed with it?



The irony is that then came Apple and beat them all. Today, Apple’s market capitalization is $ 531 billion. Google and Microsoft together cost only 456 billion dollars. But only 3 years ago, both Microsoft and Google were separately 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 make a surprise attack and benefit from a peaceful state.

D. If you can not 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 were located 4 blocks from Palo Alto University Avenue. X.com launched a product that repeats the characteristics one by one, up to an identical 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 are working on makes 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. This plan was quickly turned down, and the proposal itself was considered the result of a strong lack of sleep.

The management of each company was scared. In February 2000, we met in a neutral area at a restaurant on University Avenue, which was equally distant from the offices of both companies. We agreed to a 50/50 merger in early March. We have teamed up, raised some money before the crisis, and gained time to start a business.

E. If you can, run. If not, fight and win.

If you are still forced to go to war, then you must use a superior rival force and quickly win. If you seriously take the thought that you need to carefully choose your enemies, because fighting them makes you look like them, then your war should be short. Allow the process to last too long and you will lose yourself in it. Therefore, your strategy should be shock and awe - real shock and awe, not fake, which will draw you into a 10-year war. You must win a quick victory, but since it is often impossible to guarantee a quick victory, first of all find ways to avoid a war altogether.

Let's return the matrix two by two from the fifth lesson. We have sportsmen and batanas on one axis, sportsmen are competitors with a zero amount, and nerds are employees with a nonzero amount. On the second axis we have war / competition and peace / monopoly capitalism. We talked about that the company should ideally strive for peace and have both nerds and athletes among the employees - the nerds create a business, and the athletes fight (and win) when and if you are unlucky and you have to compete.

The hybrid model of a botan-athlete allows you to fight with external competition, but at the same time creates an internal problem: if you need to have even a few 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 resulting autoantibodies with the body’s own tissues - approx. Translator). The apparent reason 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 against Shakespeare", then we get two theories about wars between colleagues. Marx would say that colleagues are fighting among themselves, because they categorically disagree with each other about what the company should do or in what direction it should go. Shakespeare's version is exactly the opposite: people fight because they all want to do the same things.

Shakespeare's dynamics are correct, with almost no options. A typical case is when two or more employees claim one role in a company. People who want to do different things do not fight among themselves in normally functioning companies: they just take and do different things. Fights are usually those who want to do the same things.

In PayPal, the center of the conflict was the food team. David Sachs wanted the product to be one. It was a good approach, but a less good by-product of such an approach was that it was a recipe for employees creating a product that overlapped with working with all other company employees. The product could not do anything without getting into someone else's territory. A significant part of the work of the CEO 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 exact roles. Of course, startups should always be flexible and dynamic, and their roles change. You cannot avoid internal war by separating them from each other, as is done in large companies. In this regard, startups are more risky enterprises.

PayPal solved this problem by completely rearranging the staffing every 3 months. Targeted re-positioning of people allows to avoid conflicts even before they actually begin. The most crazy in domestic policy was that each was evaluated on 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. In sum, this approach turned out to be a very good way of focusing people on their tasks, instead of focusing on each other. Concentrating on your enemy is almost always wrong.

Iii. Chatting with Reed Hoffman

Peter Thiel : How do people get trapped in war? Is there any strategy to avoid a war at all?

Reed Hoffman : The most important thing is not to get bogged down in the 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 the 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, not just a psychological background.

Peter Thiel : I can argue that such a concept as prestige, for example, is not a rare resource.

Reed Hoffman : But people really appreciate him, so much so that they are fighting for him. When you are a CEO, every day people come to you and demand new positions, and the set of their duties does not change significantly.

Peter Thiel : It's true, at PayPal, we also experienced the merciless phenomenon of thirst for a higher position. We had a lot of vice-presidents, then a mass of senior vice-presidents. If we consider this phenomenon in retrospect, then it may not have been so stable. But we were bought before the storm broke.

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 one front only. Competition attacks you on the client front, in the areas of hiring employees and financing, in business development - on all these fronts. When you are one of many, your work becomes much harder, and it is already quite heavy. The great company founding strategy is heretical, and it is true. It ensures that, at least during the initial period, no one will haunt you. Over time, you still begin to pursue, if you are doing something good. This can explain the competition between Microsoft and Google, which you highlighted as something strange. Each of their companies has its own model of making a profit, its own gold mine. At the start, they were quite different. Their gold mines allowed them to finance attacks on gold mines of each other. If you can destroy someone else's source, then in the end, you can defeat the enemy.

Peter Thiel : The criticism of such justification for competition is that the moment “in the end” never comes at the scheduled time. Microsoft loses a billion dollars a year at Bing.

Reed Hoffman : It is possible that this scenario does not work for technology companies as well as it did before. Search is a continuous battle. But there are other types of success. Look at the xbox. In this case, Microsoft's decision to continue the competition worked. When Sony made the wrong move, the Xbox became a really viable franchise. Microsoft’s strategy is to own all valuable software on desktops and other rooms, not just individual products. Therefore, in the case of the Xbox, Microsoft entered the living rooms. Xbox is a tricky thing. However, competition is supported by the feeling that this idea has a lot of money. Therefore, if you have a startup and you have found some gold, you can count on competition from all sides, including the most unlikely ones.

In some cases, competition takes simpler forms, and this gives you more leeway. For example, banks with great difficulty introducing innovations, and this played into the hands of PayPal. In more complex competition scenarios, you really have to come up with something innovative to win. Difficult competition in the absence of a serious advantage leads to a war of survival. People may be dragged 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 into the woods. Sometimes people justify this by convincing themselves that "if we don’t fight here, we will fight somewhere else." Sometimes this is a valid argument, and sometimes not. But usually it’s just the pursuit of a gold mine.

Peter Thiel : However, people are not very good at estimating probability. It is unreasonable to spend all your money trying to get someone else's, if the probability of your success is small. I think this has a crazy psychological aspect. This is not a sobering calculation, because considerable effort is spent on what is possible, generally unprofitable.

Reed Hoffman : It is true that it is much easier to imitate than to invent. Many people fail to invent something new. iPhone in 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, and now we see high competition.

A passing comment 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 look for flattery. If most people like your idea right away, and they 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 the people in my circle thought LinkedIn was a stupid idea. These are very smart people. They realized that the value of a social network without a million users is zero. But they were unaware of the secret plans on the basis of which we believed that the project would fire. We received the first million users within 460 days. Now we are growing at a rate 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 thought about - a social network for business. 460 days is fast enough, but not insanely fast. PayPal came to a million users in 4-5 months ... (pause, laughter). However, despite the fact that you always need to grow quickly, you must 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 aim at a niche that is not occupied. The main question is what you will do as soon as everyone knows about you. You must have some serious competitive advantage. What is it? Speed? Inertia? Network effect? This can be a lot of things at once. You need to think carefully about this moment, because people will immediately start to pursue you as soon as you find something valuable. You have found your gold mine, now you need to protect it. It is always easier to come and collect someone else's gold than to find your source. You must have a plan for long-term dominance in your market.

Social networks felt good before LinkedIn. At the very beginning, the competition for a niche in which LinkedIn exists was quite high. But the rest of the companies, which were focused on social connections in business, wanted to sell their services to companies. They thought that the companies themselves would build networks. LinkedIn, of course, wanted to focus on people, and stayed true to his vision. It's terribly easy to lose the scale of things. People always follow the CEO and tell apocalyptic stories that we will all die if we do not change the strategy to confront competitor X. If you focus on everything at once, you are doomed to wage war without a clear vision of the overall picture, and you, of course you lose.

There is also an option that applies to people. People are looking for their own gold - career steps, prestige, status. If a lot of people compete for such things, then, as you said, this is a scenario of internal cataclysms in the company.

In LinkedIn, we are struggling with this by creating a clear role structure, much like yours in PayPal. But we create such a structure for teams, not for individuals. Each team gets its own remit. One team is responsible for growth, mobile version, or some elements of the platform. Sometimes the areas of responsibility overlap. Random conflicts are inevitable, but they are manageable. Plus the fact that each team functions as a separate startup. Each team has its own clear goals and metrics. From time to time you should fix or refactor something, and this is normal. Changes in the course of a group's movement and different approaches to setting priorities 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 efficiency.

The key point found in PayPal is that you give people the opportunity to succeed. Perhaps they will not agree on this approach in everything, they should not. There just has to be some sensible method to get people interested. This is the best way to avoid internal conflict. Another way - the passage of the whole vicious circle "we are against them" - is also very motivating. But this path is risky: staged war can be real. Such an approach can erode your long-term goals and, as Peter said, your engineers can begin designing bombs.

Peter Thiel : External war is a very effective way to fabricate inner peace. In March 2000, PayPal had a $ 15 million bank account. The money should have ended in 6 weeks. Our chief financial officer, Rolef Botha, believed that the situation was very alarming. He rightly shared his concerns with everyone. But engineers are not interested.

The only thing that mattered to them was the victory over X.com. They absolutely did not care if in the process our company went bankrupt.

Reed Hoffman : So you can't fully immerse yourself in war mode. You must develop a strategy to avoid external and internal competition. It may take 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 unprofitable for them. Therefore, you need to 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 technologies are becoming available. Oracle and Siebel dominated corporate software because they dominated the deal making business. And then cloud technologies appeared, and now you have a completely new type of product that performs the same functions. Over the past decade, really large companies have been created. SalesForce is a typical company that has succeeded and released its shares.

Peter Thiel : And SalesForce was founded by Larry Ellison to compete with Siebel in CRM design. Then she 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 the monopolist of the interface part of the Internet in 2000. It had an ideal strategy. But the company did not adapt, did not take into account social and other trends, and it was no longer so perfect. 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 session 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, in your opinion, which companies have the best secret plans?

Reed Hoffman : I think Mozilla has good plans. They understand that there is a transition from desktop to mobile applications. They differ from traditional companies in that they do not try to create a closed franchise, but try to preserve an open ecosystem for innovation. Quora has interesting plans for how to give 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 a game of chess is that even a bad plan is better than no one at all. And yet, the usual case is when there is no plan. When I taught law last year, I asked students what they would like to do in their lives. Most had no idea. Several people wanted to become partners in law firms. Even fewer students thought that they could become partners if they made an effort. The majority were going to work for several years in law offices, and “later it will be seen.”

In general, this is chaos. You must either love what you do, believe that this is a direct path to something else, or think that this is an indirect path to something. Adding lines to your resume every two years, thinking that this will expand your horizons - this is not an option. If you go up a hill, you have to retreat a little from time to time and look at this hill. If you are just marching and not appreciating progress, then you simply grow old and eventually realize that the hill was not high at all.

One of the reasons why people don’t want to think about the future is that they don’t like to change. It is unfashionable to plan something and to believe that you have some advantage that you can use to implement some projects.

Reed Hoffman : People also underestimate how big their competitive advantage should be. This should be a truly comprehensive competitive advantage. If your technology is only slightly better or your performers are slightly better than those of 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 speaking for an elevator about antispam technology. The author promised that the technology would be better than all existing examples of anti-spam, which sounded just fine, because in this area there are about 100 companies working. The problem was that it took half an hour to explain why she was supposedly better. It was not a short sentence like "We are 10 times better / cheaper / faster / more efficient." Any improvement was perhaps very minor. Buyers will not give you half an hour to convince themselves that your antispam is better than others. A half-hour talk about anti-spam is just another spam.

The situation is heating up a bit: is there a way to stay on the crest of a wave before it swallows you up?

Reed Hoffman : We asked potential employees at Greylock how they would distribute an investment of 100 thousand dollars between apps on iOS and Android, if they had to bet on the future. The only wrong answer is the allocation of 50/50 investment. This is the only answer that is equivalent to the answer "I do not know." Think of the answer and take some position. You will have your own vision of the question. This vision — or, to be more precise, the ability to have one’s own vision — is what will support you above the wave.

Another important thing is the importance of the social circle, its network. Meet smart people, talk to them. They know what is happening. They see things that others are unaware of. If you try to analyze everything yourself, you miss a lot. Talk with people about what's going on around you. Theoretically, startups are evenly distributed across all countries and states. In practice, this is not at all the case. 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 kind of 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 to 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: Are people prone to overestimate competition? What about the argument that you don't have to do something, because Google can already do this?

Reed Hoffman : When I evaluate startups, the “Google may already be doing this” stamp is not a critical argument against it, unless a startup is a search engine development.

Google has a lot of smart people. They can do exactly the same thing as you. So what of this? This does not mean that you can not do it. Perhaps for Google it will be boring. In fact, they are focused on just a few things. Ask yourself what is more likely: 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 particular potential competitor simply does not matter.

Peter Thiel : Everyone comes up with the author's version of why their product is different from others.From the side all the products look the same. So how can you say for sure that what you are doing is similar or different to what your competitors are doing?

Reed Hoffman : You can't systematize this. This is a problem that requires human intelligence and judgment. You are considering important factors. You make a bet. Sometimes you are right, sometimes not. If you think that your strategy will always be correct, then you are mistaken.

Audience question : Can you give examples of how someone successfully avoided 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 a merger. It was very difficult to reduce 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 reverse 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 about the fact that you 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 in serious loss. BillPoint was the only existing gold mine. We had to win. It was time to pump the competitive talent of an athlete. One of the decisive steps of this war was to focus on email. The actual auction platform was not the eBay website, as most suggested. It was an email. If someone won at the auction, the notification came by e-mail. EBay knew this, 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 at an auction before it did eBay.Therefore, people began to use PayPal for payment, which was the real purpose.

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So, Bloomberg is trying to build a technological New York that will compete with Silicon Valley and defeat it. Well, we wish him good luck. The more development centers in the US, the better for us.

But in order to compete, they definitely need luck. Silicon Valley has a striking network effect. Technology is what we do, this is the game that we all play. If there is a place in the world where it is necessary to engage in technology, then here. People move here to become part of the technological world.

Technomir New York will have to compete for engineers. Many top engineers come to hedge funds to move to Silicon Valley.

One way to understand the effect of competition is to look at companies that have been formed here. They stand up to global competition because they have stood the test here. The best engineers come here to work. And they are totally committed to their work.

The whole culture of New York has neither positive nor negative values ​​for achieving success in the game of innovative technologies. This is a great place to live. Well, Mayor Bloomberg, you are very excited for 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 in this game and will not miss too much the Broadway show.

Question from the audience: Maybe culture is important in some sense? Engineers in Silicon Valley are not very sociable. Then how can they play social games?

Reed Hoffman : It’s not true that ALL great companies came out of Silicon Valley. With 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 products of the valley. This is really impossible. For example, Groupon could not be invented here. They need 3,000 salespeople. This is not exactly what Silicon Valley specializes in. But it worked well in Chicago. Therefore, there is a lot to learn from Silicon Valley, just like me. And of course, there are other scenarios.

However, the Silicon Valley scenario is just excellent, and most likely the best. If you need to choose what to put on - on the technological portfolio or on the portfolio on sales processes, choose the technological one. New York is the second interesting place for consumer Internet. And it is unlikely that it will push Silicon Valley from the first place.

Peter Thiel: My opinion - New York is quite far from the first place. There are some very cool companies that were founded in New York. But one of the arguments against New York is that the media industry plays a much bigger role there than here. This creates fierce competition, because people focus a friend on a friend, and not on creating something. New York is more competitive in its structure, in all senses. People literally live on each other’s heads. They are trained to fight and they like it. Sometimes it is very motivating, perhaps something from this approach helps to form new ideas. But at the same time, such habits are pushing people into unnecessary wars. And we will continue to observe how even more original and cool companies will emerge from Silicon Valley. Reed, last question. What advice would you give to young entrepreneurs?

Reed Hoffman : You can learn a lot from companies that have succeeded.
Companies have gained a lot with the advent of the Open Graph platform from Facebook. 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 the wrong approach.

The key point is the circle of friends. This is a very important way by which you receive new information. Meet smart people, talk to them. What have you seen in the past few months? What do you know? The “go and read all” approach will not work. You can die before you finish reading. Better to just share ideas with smart people from your social circle. Not all the time, of course - it’s also necessary to work, but by dose. Use what you have learned and update your strategy if there is a guarantee that it will work. And then apply it.

Note :
I ask translation errors and spelling in lichku.The translator is astropilot , all thanks to her.