Teppo Felin in Conversation with Peter Thiel at Saïd Business School

Peter Tufano: Good afternoon. I’m Peter Tufano. I’m the Dean of the School.

Peter was asking, how many of you are from various places? How many of you are from the Business School? For those of you who are not from the Business School, shout out where you’re from?

[Audience shouts.]

You can get a sense.

We’re thrilled to have Peter Thiel here today. We’re also thrilled to have you here today, all of you. I was trying to think why you might be here. You might be here because you think PayPal is really cool and you wanted to hear about how it was founded. Or maybe, if you learned a little bit more about how putting a couple of rival firms together and then trying to capture a new market, that would be exciting.

Or maybe some of you like big data and you think that Palantir here is a really fascinating firm and you want to learn more about that. Or maybe some of you are would-be investors and you think that somebody who is able to get in on the ground floor of Facebook, you can learn something from them. Or maybe some of you have had the good sense to read Peter’s book Zero to One and you found it provocative.

For example, I particularly like the line, which says, I’m going to paraphrase but it’s not about entrepreneurs, it’s about founders and pick a big important hard problem and then try to solve that.

For whatever reason you came, I think we’re all going to benefiting today by having Peter join us. For those of you who are out there in the ether, welcome to you as well.

Peter is going to be in discussion today with my colleague Teppo Felin. Teppo joined us a few years ago and is a strategy expert. For some of you, he’s your professor. He studies networks and entrepreneurship and innovation. He also, before becoming a professor, was a venture capitalist so I think this is going to be a great conversation.

Peter, thank you for coming. Teppo, thank you for hosting. Everybody thank you for coming and let’s get on with the discussion.

Teppo Felin: Peter, welcome to Oxford. We’re thrilled to have you here.

I was telling some students ahead of time, they were asking me what books to read. I hate to pitch any best-selling, popular press books because it feels like selling snake oil but the one exception, and this is going to be a little bit of a love fest, is Zero to One and here’s the pitch.

I love this book and that’s the reason I invited Peter to come to Oxford. I think this is a great place for Peter to come to Oxford and for us to learn from him. We’re absolutely thrilled to have you here and to talk about the book.

Peter Thiel: Thanks for having me here.

Teppo Felin: Absolutely. In terms of the format, we wanted to make this participatory in the sense that a few weeks ago, we sent out an email to students. We said, “What questions would you ask Peter Thiel? He’s coming to Oxford, what questions would you ask him?” We used all out ideas and people submitted questions and there was a ranking system. I have a set of questions that you’ve provided for me so I’m actually sort of a channel here and I’ll filter a little bit.

There’s also an opportunity for you to live, engage with this discussion and we’ll try to be savvy about that by using the hashtag #askpetertheil on Twitter. As you’re listening to this discussion, as you have questions, we’ll try to react to some of those and pick them up and then I’ll ask Peter.

Without any further time here, one of the things I love about the book, it’s right at the beginning and it’s the question that you ask every entrepreneur. The reason I like the book is most books have solutions but yours has questions that people need to think about basically. Can you summarise what that question is and why it’s important for entrepreneurs to think about?

Peter Thiel: There’s an ensemble of contrarian questions and I think you always want to be doing something that is fundamentally true but that other people are not doing. That combination is always very powerful. The business version of the question is, “What great company is nobody starting?” The investor version is, “What great investment does nobody like?” The non-profit version is, “What worthwhile but unpopular cause is not being funded?” The more intellectual version of it is, “Tell me something that’s true that nobody agrees with you on?”

This is one of those interview questions that’s a shockingly hard question, not because it requires some incredible amount of genius to answer.

I think we all actually have answers to this question but because it’s a very uncomfortable question to answer. A good answer is not a conventional answer. A good answer is not that our education system is broken or that our politicians are clowns or things like this. These are answers that everybody already knows to be true. The answer is one that the interviewer is likely to powerfully disagree with and I think we live in a world in which courage is in much shorter supply than genius.

Teppo Felin: Where do these types of questions come from? Educational and other systems reinforce that there are known facts out there that we can all agree on, that’s what we disseminate and impart. The question is how do you get contrarian themes from left field? Is there any way to nurture that in some fashion?

Peter Thiel: This is always the paradox of teaching entrepreneurship or teaching innovation, because on some level, there is something paradoxical about trying to offer a formula for how to do new things.

There’s a sense in which in science, you can say that science always starts with the number two. It starts with experiments that you can repeat and do over and over again but I believe that every moment in the history of technology or perhaps in the history of business generally happens only once.

The next Bill Gates will not start an operating system, the next Larry Page will not start a search engine, the next Mark Zuckerberg will not start a social network. If you’re sort of slavishly copying these people, there’s some sense that you’re not learning from them.

I don’t have a precise formula for how to answer it but I always like to start by engaging with how problematic it is and how much we should just try to avoid these clichés of trying to find some formula or mechanism for innovation when that probably does not exist at all.

Teppo Felin: As I was thinking about your question, there’s sort of this interesting, fine line between it being delusion and maybe truth. The question, “Do you believe something that almost no one else believes?” That could be the seeds of bias or delusion in some way.

It’s an interesting balance and at what point can you tell which is which when you’re talking to an entrepreneur?

Peter Thiel: It certainly is a very fine line and I think if you had to give a constellation of traits that make up a lot of the great entrepreneurs, I think a lot of them have these nearly diametrically-opposed qualities. They’re obviously not precisely A and not A, that would be contradictory but you have people but are very stubborn but still quite open-minded…The way in which people are somehow both inside the system and outside the system at the same time. You have these zen-like paradoxes.

Teppo Felin: Interesting. I was revisiting the book again yesterday and one thing that struck me, the philosopher Kierkegaard has this essay that I absolutely love and I have students read it. It’s called The Crowd is Untruth. As I read your book, you have that sense where there’s something about the crowd, where it’s going after things that might be overvalued and that might not always be true.

You think about it in different ways but it almost links to that. You have this nice tension between individuals and society and how we sometimes move in herd-like fashion in terms of how we value things.

Peter Thiel: Yes, I tend to be quite sceptical of psychosocial crowd manias. You don’t necessarily want to simply go against the crowd as that’s a little too formulaic but certainly if we think about the history of recent decades or the last few centuries, we’ve had crazy financial bubbles of one sort or another that were driven by the insanity of crowds. We’ve had dangerous and really bad totalitarian movements in politics, which had this powerful crowd dynamic.

Perhaps the antithesis of my book is the clichéd version of Malcolm Gladwell, The Wisdom of Crowds. If you had to give credit to Malcolm Gladwell, the way the argument actually works in The Wisdom of Crowds is that if you have a crowd of people and they independently make a judgement and they all independently think something through, then you can average it out and you’ll get to a pretty good idea.

If you had a bag of marbles and you asked every single person how many marbles there were and everyone thought about it independently of one another, the average answer would be pretty good.

The problem is that in most cases, the decisions don’t end up getting made individually, people are influenced by one another when they make them and when you have a crowd dynamic in which people are drawing conclusions because they’re looking towards one another, that’s where the crowd is untruth.

Already in the time of Shakespeare, the word primate meant both ape and to imitate. I think it was Aristotle who said man differs from other animals because of his greater aptitude for imitation. This is a very deep part of human nature. It’s how kids learn from parents by copying, kids learn language by copying their parents. It’s how culture is transmitted in our society but it’s also how very many things go wrong.

It’s a slightly extreme formulation I have of this but there is this strange phenomenon in Silicon Valley where so many of the successful entrepreneurs seem to be suffering from a mild form of Asperger’s or something like this. I think we always need to flip this around and ask the question, why is it that the people who are not suffering from Asperger’s are at a disadvantage in our society?

They are in affect talked out of their interesting, original ideas before they are fully formed. You pick up on all these subtle cues from people, “That’s a little bit too strange,” “That’s too weird.” “I’d better go ahead and open that restaurant and do something that’s super conventional that lots of other people are doing,” and that probably, at the end of the day is not going to be, weirdly, that effective.

My apologies to the audience here. They’ve done these…I often think of the business school demographic as the anti-Asperger’s demographic. I’m not sure what the word is for the anti-Asperger’s but maybe it’s a business school student or something. It would be the sort of people who are hyper-socialised. They perhaps can be criticized for being somewhat low on the conviction level and if you put all these people in a hot house environment for a few years and they look to one another and try to figure out what to do with their lives, it’s not clear at all that that process gets you to the right answer.

They’ve done these studies at Harvard Business School where they found that the largest cohort of people, they all conclude after a few years that they’ll try to catch the last wave. In 1989, they all wanted to work for Michael Milken two years before he went into jail for junk bonds. They were never really interested in tech except in 1999 and 2000 when they timed the dotcom bubble ending perfectly. I think this is something to be aware of.

I think it’s unfair to criticize business school students because we’re all subject to this. It’s disturbing how powerful something like advertising is. We all think about advertising, “Who are all these stupid people who watch all these TV ads and these ads work?” The disturbing answer is it’s all of us to a much larger degree than it should be.

Teppo Felin: I think you just broke Twitter. I think some of the MBA students have something to say about some of those comments but that’s okay. At Oxford we’re different, right?

Peter Thiel: You have to be careful to be different in the exact same way as everyone else. That’s when these things get tricky. It’s easier said than done. It’s always easier said than done.

Teppo Felin: That’s right. Very good. The question of difference. There’s a discussion about how much differences…diverse ideas are good. Having heterogeneity in a founding team is important but actually in your book you have this quote, let’s see if I can find it. “People should be personally as similar as possible.” You’re talking about the founding team and you talk specifically about PayPal and how there were similar interests around certain domains that you guys had in the team there.

Can you talk about on what dimensions do you want that similarity and when do you want the difference? When does which trump which?

Peter Thiel: I frame it as a paradox. I’m not sure with differences how constructive a metric it is but if you were to go with this as a metric, I think you want to have very big differences inside the team but then from the outside, you want to be seen as very different from the outside world.

If you take a company like Elon Musk’s SpaceX business- one of my PayPal colleagues started a rocket company- their mission is to go to mars. Everybody at the company thinks that they are the only place in the world where people are going to go to mars. That one idea separates it and demarcates it. That everyone there has that in common separates it sharply from the rest of the world. You want to have this commonality that everyone shares that differentiates you from the rest of the world.

Then I think, within a company, you want the roles to be as differentiated as possible. I think one of the challenges within an early stage business and a start-up is that there is a certain fluidity to it, the roles tend to fluctuate a lot. This is the way conflicts tend to arise and things tend to go wrong.

A conventional Marxist theory of conflict is that things go wrong when people want different things but I tend to think it’s more the other way round. Conflicts happen when people want the same thing. If you were a sociopathic boss who wanted to just create conflicts among your employees for no reason at all, the formula for creating conflicts is to tell two people to do the exact same thing. You say, “The two of you work on the website, I’m not going to figure out who has which responsibility. You figure it out on your own but you have the exact same job.”

It doesn’t really matter what the history of those people were, that would be a recipe for conflict. I think one of the key management things to always try to do is to differentiate as sharply as you possible can. You want to have roles differentiated sharply within companies. You want to have the mission of the company differentiated sharply from the rest of the world.

Teppo Felin: On that differentiated mission that the company has, it feels like there are two schools of thought on entrepreneurship around this if you look at entrepreneurship centres and other type of things in terms of how people think about this. One of them is listen to your customer and minimal viable leaning and that type of thing. You seem to be suggesting the antithesis of it basically.

You argue in your book later on about secrets. One is ideas based on…I’m caricaturing here, but ideas based on consumer user surveys, that way we’ll validate what we’re doing. The other you’re building something. Steve Jobs was about design but he was about designing a great company and that was what was central.

Do you see these two divergent approaches to thinking about start-ups? One is the minimal viable type approach versus the other. You briefly mention them both but could you talk a bit more about them?

Peter Thiel: There are obviously versions of both approaches that work. Having a minimal viable product by definition is probably the minimum of what you need and probably on some level, you don’t need more than a minimal viable product. There’s almost an analytic sense in which that’s tautologically true.

At the same time, I do think we tend to be dominated by a somewhat nihilistic bias. We claim to not know anything and when you don’t know anything, you end up defaulting too much to the experimental search AB testing approach. “What do we do? A or B? Let’s figure it out. Let’s ask the customers.”

In the abstract, I would say the problem with that is that the search space is simply way too big. There probably isn’t enough time in the history of the universe, much less before your venture capital funding runs out to do a thorough AB testing and go through the full search space.

I think in practice the problems are not as purely empirical as people like to make them. I think it’s much better to have a good analytic framework. This is an important problem that needs to be solved. This is the set of things we have to combine in just this way to do it. Once you’ve done that, there are obviously a lot of ways to fine-tune that and that’s where I think the AB testing approaches are very useful. I think there’s definitely room for both. I would say that we live in a world where it’s far too skewed to the first and not enough to the mission-driven, vision-driven company.

Teppo Felin: Maybe practically, have you invested in companies who had that big vision but then, to use, I hate the word, pivoted, but then were nonetheless successful. They had something that they went after and that at some point there’s a tweak. I guess in any company there are always tweaks on the margin in terms of what they are doing but have you invested in any companies where you’ve seen that sort of play out? Any examples come to mind?

Peter Thiel: There are definitely are companies, it’s a bit of a… what counts as a pivot, what counts as a tweak? We can get lost in terminology. There are definitely points when things changed quite a bit. I think PayPal, our original business plan was to have payments on palm pilots and then it was wireless payments, then it was payments linked to email. We had a few fairly big pivots in the first year.

I’m not sure if there’s anything especially virtuous about that. I think that if you have a dumb idea, it’s important to change it but it’s not virtuous to have a really bad idea in the first place.

Teppo Felin: In the book you have a sub section which talks about recruiting co-conspirators essentially into what you’re doing. You have this interesting discussion. You have all these Silicon Valley companies which are competing on perks basically, competing on who will offer the fuss ball table and the ping pong and so forth and you say that’s not the right way to think about it. What’s the right way to think about that recruitment? You have this interesting discussion about the 20th engineer, could you talk about that?

Peter Thiel: There’s always this question about corporate culture. If you define the culture of a company the way a HR person would, that’s probably evidence that you have no culture at all. There are often all these buzz words that indicate the opposite of what they say. It would be interesting to list all the words that mean the opposite: “I’m joking,” “Frankly,” “Honestly, “My friend”- all sorts of things that when you say them, they sort of connote the opposite. There’s probably something like this with corporate culture in general. You shouldn’t think of corporate culture as having fuss ball tables and lava lamps in the office or any sort of generic things like that. I think its always much better to define it around the common mission of the company.

I don’t think businesses work best when they’re just about making money. At the same time, I’m also somewhat sceptical about social entrepreneurship as a category. I differentiate that very sharply from a mission-orientated business. A mission-orientated business is one where you’re working on a problem and if you don’t work on it, nobody else in the world will. I think that tends to imbue things with a very deep sense of purpose. “We have this novel approach for curing cancer. Nobody else believes it makes sense. If we don’t do it, nobody else will.” There’s something very powerful about that, whereas I think with social entrepreneurship, that you have this idea that we will do well by doing good and you often end up doing neither.

I think one of the things that people get tripped up on is that the word social is a very ambiguous word. It can mean number one, good for society, which I think is a good thing but it can also mean, number two, good as seen by society, where we get back to the Kierkegaard thing that the crowd is wrong. If it’s good as seen by society, you end up with copy cat, me too- the hundredth micro lending company, the tenth online pet food company. Whenever you’re in the nth company of a category of a company, that’s not a place you want to be.

Teppo Felin: You’re calling for more big ideas, less copying. I’ve always wondered, do we have a counterfactual? Is there another world where that could be happening? In some ways, is your book a call to think bigger?

In some ways, there’s always a worry that we have lots of entrepreneurs trying different things and entrepreneurship inherently, given that it’s an uncertain environment, inherently, we’re going to have lots of failure as well but I’ve always wondered about the counterfactual here. What do you think?

Peter Thiel: Counterfactual questions are always hard to answer but certainly if you telescoped out to the somewhat bigger picture, it is my claim that over the last 40 to 50 years, the story of innovation has been this very two-tracked story. We’ve had a lot of innovation in the world of bits, computers, software, internet, mobile internet, that whole ensemble. We’ve had much less innovation in the world of atoms, which would be everything from energy, medical devices, biotech, supersonic aviation, underwater cities, all these sorts of things that people would have talked about in the 50s and 60s as the picture of the future.

I think there are many different reasons for these different tracks but I think the sense in which the cone of progress has been this narrow cone around IT where the word of technology has a much narrower definition than it had in the 50s and 60s. Technology basically means information technology and not say, nuclear power, or supersonic aviation or any of the other things people would have used it to mean 40 or 50 years ago. That does suggest to me that there has been this narrowing and it’s been more of a political, cultural and social decision than a law of nature. We’ve simply run out of ideas and these other spaces did not make sense.

Teppo Felin: Interesting. Related to this, one of the discussions that’s quite interesting in your book is about luck. What’s the role of luck in all of this? There is a school of thought…The mathematical Emile Borel has this thought experiment that if you have enough people flipping coins, there is going to be somebody who ends up flipping heads over and over and over. We can talk to them and say, “What was your strategy? Why did you win?”

What are your thoughts on luck? What are your thoughts on that sort of argument about success?

Peter Thiel: It is probably the most important philosophical question in business in a way, is how much one should attribute to luck or to skill. I think if we’re honest about it, it’s a very hard question to answer because again you don’t get to do this experiment multiple times. We don’t get to run the history of 2004 a thousand times to see if Facebook would have succeeded every time or just this one time. We can’t even run the coin-tossing experiment.

What I always like to differentiate are these two different ways that I think luck gets used. One is sort of as this deep metaphysical statement about reality where it’s just in the nature of reality that luck and chance are the ultimate forces in our universe. The sound bite version of it is, “Luck is just an atheistic word for for god.” It’s this metaphysical statement about reality.

The other way to describe luck is that we use the word luck when we’re just lazy and we don’t want to think about things. The insertion of the luck is not a statement about reality but about our personal laziness. We don’t really want to think things through.

For that reason I always have a preference to push back on making luck too all-powerful. I found that as a venture capitalist, one of the temptations you always have is to treat every investment as a lottery ticket, which I don’t think is a great way to treat people. It’s not a particularly good way to invest.

If you set up a table here at Oxford and said, “I have no idea what’s going to work, I’m just going to write cheques to everyone that I can. It might work, it might not work. I’ll just write a small cheque to everybody.” Once you think of it as a lottery ticket, you’ve already psyched yourself into losing money. When you think that you’re multiplying a very small probability by a big pay off, the answer is normally just zero.

My preference is always to try to skew more in the direction of higher conviction, more concentration and against the conventional bias that it’s all luck.

Teppo Felin: There is an interesting self-fulfilling prophecy in all this. If you think it’s luck, you’re not going to take action, versus if you don’t think it’s luck, you’re going to do something. There’s almost this self-fulfilling, where the beliefs themselves get reinforced by the actions and so forth. Is that a good language for it?

Peter Thiel: Yes, there probably are all these ways the beliefs and the actions feed on one another. I would say certainly one bias that happens if you think luck is very big, is to treat everything as a portfolio. There’s sort of this financialisation bias people have where you end up having a portfolio of lots of different lottery tickets. If you think that’s less the case, then you’d end up doing less of that.

When we’ve look at our venture investing over the last ten to twelve years, it’s generally been our higher conviction investments that have done better and a lot of smaller investments that have done worse.

When I look back on the thinking, it was often, we didn’t have that high a conviction and instead of really working and figuring things out, we’d just compromise and say, “We can’t figure it out, let’s just write a smaller cheque.” I think often, there was this sort of laziness that crept in that one should always resist.

Teppo Felin: A lot of the questions here on Twitter and some of them that were voted in the system as well, did focus on characteristics. As you’re looking at start-ups, say you’ve got a start-up of three or four people, it’s very early stage…It sounds like you’re looking for a big idea basically and conviction, not extroverted, introverted…

Peter Thiel: If I had to reduce it to a formula, in contradiction to everything I’ve said so far, let’s try to reduce it to a formula. I’d say the three-part formula would be that you have a great team, number two would be you have some great technology because I’m focused on technology investing, and number three would be that you have a good business strategy. The good business strategy in my book would be that you have a strategy of how to get to monopoly.

You can have a great team and a great technology but no business at all. Most technologies in the history of the world didn’t make money. You make money when you create X dollars of value and you capture Y percent of X. In most cases, people forget that X and Y are independent variables and that in most cases Y equals 0 percent.

The Wright brothers didn’t make a fortune in aviation. There were lots of people who built aeroplanes. The cumulative profits in the history of the airline industry have been approximately zero, even though the world is much better off with aeroplanes. They were a very big innovation and you had some great teams. I do think we want to keep these things very separate: the team; the technology; and the business strategy.

I’ve put a lot of focus on recent years on the business strategy, the monopoly question because I think this is a taboo question that people are not allowed to talk about. I think from the inside, the goal of every company should be to achieve a monopoly. We can debate whether this is good and bad for society on the outside but on the inside this is always the goal. This is not the goal that’s discussed.

If you are the CEO of Google, you don’t go around saying, “We have the greatest monopoly in the world, much more robust than anything Microsoft ever had in the 1990s.” You instead say, “We have this fantastic technology and we have these really, really smart people.” You focus on the talent and the technology. You downplay the business strategy because it’s strategic not to talk about the strategy itself because of the context we’re in. If you talk too much about what’s really working, some people from the government will show up very quickly. I’m not even going to say that it’s morally bad what they’re doing but we should at least be aware of what’s going on. I do think the business strategy part of it is downplayed, to the extent that we focus on the team question.

I would say one critical variable of that is in fact a team. There are many kinds of things that one can do as an individual. You can be a great writer or a great university professor, where it’s very much a solo effort. Most of these business start-ups are things where it’s a little bit too much for just one person to do so you want very talented people who can work together. This is actually not a skill that’s generally taught in our society. You learn in these weird team sport contexts, which I think have nothing to do with life whatsoever. Outside of that, group projects are normally things that don’t really matter in academia. This is something that I think tends to get very underdeveloped.

I think a good pre-history question that I like to always ask is, “When did people meet? How long have they been working together?” A bad answer to the question is, “We met at a business networking event a week ago and we decided to start a company because we all wanted to be entrepreneurs.” A good answer is, “We’ve been friends from university for a number of years, one of us is more on the business side, one is more on the technical side.” I think with the pre-history question, you don’t want to get married to the first person you meet at the slot machines in Las Vegas.

Teppo Felin: Very good. One of the questions, both here on Twitter and it came up in the set of questions that were submitted. You wrote this piece in the Wall Street Journal entitled Competition is for Losers and what you’re engaging in in terms of investing in companies, money is a relatively homogeneous resource. One of the questions is, can you find a monopoly in investing?

Say you find a good team, is this something that’s visible to other investors out there as well or is there some way of developing some unique insights about what it is about that team that will then make you savvier venture capitalist. There are others who are looking to invest in companies and there is competition there.

Peter Thiel: Yes, this is a question that I always do push us on internally. We’re always preaching do not compete and do we practice what we preach or is it just endemic to venture capital or finance that it’s structurally quite competitive?

Again the contrarian investor question is, “Is this a great company? And is there a reason other people don’t see it?” I’m always very interested in pushing variants of that second question like, “What is it that we understand that other people don’t?” If you don’t have a good answer to that then maybe it’s an okay investment but I think it’s unlikely to be a really great investment.

There certainly are some cases where you can be contrarian in a bullish way. You’re much more bullish than anyone else and there’s something about the exponential compounding of the growth that’s going to keep going for longer than anyone thinks. One can certainly wonder how much about that people no longer understand today.

That has been something that’s certainly worked really well for the last decade or so. I think there are always variations like this. I do think there are some consistent systematic blind spots that people have on a surprisingly recurrent basis. I don’t think it’s just this super unusual thing. I think capital ends up getting deployed in surprisingly inefficient ways because you have the madness of crowds dynamics in the background.

One simplistic way to describe this is that there is a very big difference in investing your own money and investing other people’s money. When you invest your own money, you’re simply trying to generate good returns. When you invest other people’s money, you typically have two objectives. Number one is to get good returns and number two is to look like you are going to get good returns. The disconnect between those two is much greater than people think.

Teppo Felin: Very good. I want to take a question from Twitter and this came up in a few of the other questions as well. There are lots of these incubators around in various forms in terms of how involved they get and how large they are and what gets offered in terms of coaching and things like that. What do you think about incubators?

Peter Thiel: It’s always a very specific question. What do they help you do that you can’t do on your own? I’m fairly bullish on Y Combinator in Silicon Valley. I think they have powerfully succeeded in differentiating themselves from others. It’s like an elite university where it doesn’t really matter if you don’t really learn anything; the fact that you’ve gotten in is enough of a signal. If you get into a place like Oxford, you should go even if you’re not going to learn anything here. Hopefully you’ll learn a little bit along the way.

I think if it’s a selective incubator like Y Combinator, you can get that. On the other hand, if it’s one of the 50 other incubators in the UK, you have to always worry whether the signalling is the opposite- that maybe there was something wrong with your company, that you couldn’t have done it anyway. These things can cut very much in the opposite direction.

I think the temptation that one has as an entrepreneur is always that there are a lot of things as founders that you don’t know the answers to and you don’t know how to fix. The temptation is always that someone else will fix and solve these problems for you. I think this is a bit misleading.

An acquaintance of mine in Silicon Valley…I have to be very careful, I can tell the story as long as I don’t name any names… He said that his comparative advantage over other venture capitalists was that he was better at lying to people. He was better at telling people how much he’d be able to help them. Everyone feels they need help. If you’re someone who is unusually good at doing this to people, that’s some sort of advantage.

I think the disturbing reality is that there are some places where incubators, venture capitalists and accelerators, can help you. There are a lot of places where you have to figure this out on your own. If you’re counting on someone to show up who’s seven feet tall and is wearing a large capital S emblazoned on their chest to help you out, you’re not going to get Superman, you’re going to get an imposter.

Teppo Felin: Very good. Are you sure you don’t want to make news and tell us who that venture capitalist is?

Peter Thiel: I don’t think that’s appropriate.

Teppo Felin: Very good. You mentioned education earlier. You’re here at the University of Oxford. You got a degree in Philosophy at Stanford. You went to Stanford Law School. Did that influence you?

Peter Thiel: Of course, I learned a fair bit. I made a lot of really good friends, at both undergrad and at Law School. I think that if I had to do it over again, I probably would still do the same thing. I would ask more questions about why I did it. I was just on a super-tracked trajectory. Already in my eighth grade junior high school yearbook, one of my friends wrote, “I know you’re going to get into Stanford four years from now.”

I got into Stanford four years later. I went into Stanford Law School. I went to so all of these track things. I ended up at an elite law firm in Manhattan. It was one of these places where on the outside, everybody tried to get in and on the inside, everybody tried to get out.

When I left after, I had this rolling quarter-life crisis. I never had a mid-life crisis. When I left after seven months and three days, one of the people down the hall from me said, “It’s really reassuring to see that you’re able to escape from Alcatraz.” All he had to do was go out the front door and not come back but psychologically this was very hard for people to do because so much of our identity gets wrapped up in these academic competitions that we win.

I think learning is a good thing. I think the education system becomes problematic to the extent that it becomes a substitute for us thinking about our future. If we say, “We’re going to get a degree, then we’ll have options but we have no idea what those options are.” That feels to me again, like sort of a luck-related cop out that we should be trying to avoid.

Teppo Felin: This is completely unfair here. You’ve mentioned that the university system is broken. Is there any way for you to fix it from your perspective? Any thoughts on that? You’re famous for the Thiel fellowship but in general, is there a way to fix the system?

Peter Thiel: I think to the extent that there is something broken about it, it is the one size fits all approach. If I were to come up with some alternative system, I’m not sure that would make things any better. There are a lot of education-related start-ups that I’ve gotten pitched on over the last few years and I think one of the things that they systematically get wrong is there’s always a question, what are people actually trying to get with education? Is it about learning? Is it an investment in the future? (which is the way people often talk about it.)

Is education a consumption decision? Where it’s sort of like a four-year party to go college. Or maybe it’s an insurance product. You’re getting education to avoid falling through the cracks in our society. I think that’s actually the way a lot of parents and young people think about it today as an insurance product. Or is it in reality a zero sum tournament in which it’s fundamentally not a positive sum learning, not, “I know something and I’ll teach it to you and then the body of knowledge is increased,” but it’s this crazy zero sum tournament dynamic. I think a disturbing amount of it fits the later category.

The thought experiment that I always suggest to people is if you were the president of an elite university and you wanted to get lynched for some strange reason, a very easy way that you could get all the students and alumni and faculty to come after you…If you were say, the President of Harvard University and you want to get lynched, you would say, “We have a great education, everyone benefits from it tremendously so we’re just going to triple enrolment in the next decade. Obviously the world is much bigger than it was 50 years ago so three times as many people shouldn’t be remotely controversial.”

It’s a very strange question. What sort of economic good is it if you don’t grow the business? Maybe it’s like a Studio 54 nightclub where you have a big velvet rope and long line outside and very few people on the inside.

Again, it’s not a critique of the people who go to these places. If you get into an elite university, I’m not criticising people for going. I think in many cases it makes sense to go but we have to realise that something very different is at work from what’s advertised.

Teppo Felin: One of the great things about Oxford, is it’s almost taking the opposite. You’ve got these mooks who are doing things on a massive scale and here we have things like tutoring which is on a one-to-one basis, which is almost completely different, it’s going in the opposite direction so it’s a refreshing model here and it has been for a thousand years anyway.

Okay, so one of the other questions that popped up here is you’re a libertarian but what if anything, can governments do about start-up activity? Is there any role for government in enabling technology-related things? What’s the role of government in innovation basically?

Peter Thiel: I’ll give both a libertarian and a non-libertarian answer, although the second will be libertarian in disguise. I certainly think the limited government critique is always that less regulation is critical. If I had to give one explanation for why we’ve had a lot of innovation in bits and not much in atoms is that we live in a world in which bits are unregulated and atoms are regulated.

If the Food and Drug Administration in the US got to regulate video games and you only got to manufacture a video game if we determined that it wasn’t bad for your brain and didn’t cause brain damage and we had to do double-blind ten year long tests and drug studies like for a pharmaceutical drug, you’d have a lot less innovation in video games.

I do think there’s been this very heavy regulation of many sectors of technology to the point where there’s very little happening in them, to the point that they’re no longer defined as technology at all. I do think less heavy regulation would be a good thing. Obviously people will disagree about this for all sorts of reasons but if you want to have more innovation, that seems to me to be a very straightforward way to bring it about.

Now if I had to make a pro-government, government being more active case, it is that there are more certain aspects of science and technology that don’t quite fit into a for-profit business model. We already alluded to this. If you create X dollars of value, you capture Y percent of X, there are many kinds of things. There’s basic research and there are many other areas where it doesn’t naturally fit into business. It would seemingly have the characteristics of public good where you want government funding, non-profit funding of one sort or another to really drive the innovation.

I think the challenge for that at this point is that I think our governments have become much less good at doing this then they used to be. We did have a Manhattan Project, the Apollo Space Programme in the US. If you had a letter from Einstein to the White House, it would get lost in the mailroom today. It would be inconceivable to do anything like this.

I think if you want a government to have a more proactive role in science or technology, I would say the starting point has to be that the government has to be made up of people who actually understand science and technology and are able to use their insights into this. This is a world away from the government dominated by law and finance type people that we have today.

If I gave a case in point about the clean tech debacle in the US over the last decade. It would be good to have innovation energy, maybe the business models don’t quite work. Then you have this this question of how do you fund it. How do you decide which technology to support? There was this very high profile bankruptcy of this company called Solyndra but because our government is dominated by finance and law, it was rationalised in financial or legal terms.

The Republican critics of the Obama administration said, “Well there was corrupt campaign spending, and all these processes were violated.” The defence said, “All the policies were followed. We had a portfolio approach. There was a financial portfolio versus a corrupt process.”

The question that I think needs to be asked much more is a substitutive question, “Do you actually think the science would work?” The very straight-forward case is that it should never have worked. If you have a cylindrically-shaped solar panel, it’s 1 over π as efficient as a flat panel. The surface area is 2π R times the height versus 2R for a flat panel, you get the same amount of sunlight. Setting aside even the complexities of 3D manufacturing, it’s high school geometry that tells you this would have been 1 over π as efficient.

The person who ran the energy department Steve Tew, in the Obama administration, has a Novel Prize in Physics and is not allowed to use high school geometry to veto spending. As long as we have a government in which you’re not allowed to use high school math to make judgements on what to do, it’s probably not going to be one that will be able to really foster science and technology in a meaningful way.

Teppo Felin: Just briefly, you mentioned the importance of basic research. How do you evaluate the importance of it? There’s this Oxford professor G.H.Hardy, he was here at Oxford and also at Cambridge, that other school that I don’t want to mention. He was famous for saying, “I don’t want to work on anything practical, I only want to work on beautiful things.”

He had an apology of a mathematician or something like that. It ends up that his mathematics in number theory became central for cryptography. It’s very hard to anticipate the uses that might come out of basic research, which is very hard to evaluate, you just have to just fund it and have people working on it.

You already mentioned, there’s some role for it but the question is, how big is that role and how then does that then feed into technology and start-ups?

Peter Thiel: I think there is some role. The concern I would have is that it somehow works less well than it used to. there was another mathematician Hilbert from Oxford or Cambridge or one of these two places who in 1900 set out this series of maths problems for the 20th century that were unsolved and it set the agenda for mathematics. I think if you have, in the 19th, early 20th century, we still had a world in which the really great scientists or mathematicians understood the whole of their fields. One of the really deep challenges that we have in the early 21st century is these fields have become vastly more specialised. The people we have to evaluate and to make these political funding decisions are much more narrowly self-interested.

The worry is that we’ve had this aggression law at work where people who are nimble in the art of applying for government grants have somehow replaced the interdisciplinary polymath type people who have pushed a lot of the progress. I think this specialisation is very tricky. When we look at a lot of these science areas, if we look at superstring theory, we have a community of people doing superstring research. They claim it is the be all and end all. No one can question them.

As a matter of the science, it’s hard for an outsider to evaluate the politics of it, I end up being somewhat suspicious that something’s gone wrong and you can replicate that across fields. I don’t have a great answer to this problem of specialisation but I think this is a very deep problem in the 21st century that has resulted in a much greater degree of politicisation that we would have had 100 or 200 years ago.

Teppo Felin: Great. We have a lot of students from the developing world here at the university and lots of folks working on trying to solve problems in the developing world as well.

You’ve provocatively said that we need to develop the developed world. What of your insights her might be applicable in the developing world specifically?

Peter Thiel: Well, let me just give a bit of a general answer in conduct to my book. I differentiate these two different these two different modalities of progress. I draw them on the X axis. I draw globalisation and copying things that work on the Y axis. I draw technology and doing new things. I do think that in a successful 21st century, we need both globalisation and technological progress.

Certainly part of it is for the developing world to continue copying the developed world to progress. Another part of it is for us to have a future in Western Europe and Japan and the United States, where we can say that the younger generation will actually be better off than the current generation, that we will continue to progress from where we are. The question of technology is clearly a problem for the developed world.

Without technological progress, it’s hard to imagine how things will not get better. With respect to the developing world, I think it’s a bit more of an open question. Is globalisation alone going to be enough? Or do you hit some limits? I think of China as the paradigm case of globalisation where for many decades, it’s simply been, just copy the West and copy what works, we can skip a few steps so we can do it really quickly. There is probably some limit to it.

I suspect that China cannot catch up to the West based on globalisation alone. I think you will run into environmental constraints, you will run into resource constraints. If every second person in China had a car like in the US, there is probably not enough oil or not enough conventional resources in the world to power that. I think for living standards in China to catch up with the Western world, globalisation alone is probably not enough. You probably also need technological innovation. I think it’s a more complicated question in the developing world than in the developed world but I end up coming down on the side that we need some of both in both contexts.

I think if you telescope out on the history, we’ve had periods of both globalisation and technology in recent centuries. In the 19th century I think you had both. From 1815–1913, 1913 was a high point of globalisation with World War I and communism. It went very much in reverse for many decades. 1914–71 was a period of technology but no globalisation. In 1971. Kissenger opening China was the day that globalisation started in earnest and we’ve had limited technological progress in recent decades mostly focused on computers.

My suspicion even though it’s hard to prove, I wonder whether in retrospect, the year 2007 will be seen as a high point for globalisation much like the year 1913. We pushed globalisation too hard, we’d not pushed technology enough and the system reached some natural limits. Certainly the hope is that is doesn’t end as catastrophically as it did in 1913 but I think pushing the accelerator on globalisation without anything on technology I suspect will not work that well in the decades ahead.

Teppo Felin: Fantastic. Is there any sense in which it might not be as much these developing countries catching up as potentially doing things differently where it might actually lead to new innovation? It might not be that you have as many cars but you have new modes of transportation that might then diffuse in fact, back to the developed world.

Peter Thiel: Certainly that’s possible. In theory there is no reason why this shouldn’t be happening and couldn’t be happening. In practice, I think there is a fairly limited amount. If you look at most of the venture capital firms that are investing in China and India, they are heavily focused on these clone companies, these copycat business models. They are generally not focused on technological innovations where you do something that’s maybe a little bit worse but much cheaper, which would be the kind of innovation we’d like to see more of.

Teppo Felin: Fantastic well Peter, thanks for coming to the University of Oxford. This has been a fantastic discussion. You’ve provoked a lot of people in here I think so we will continue this discussion online but we appreciate your time. Thank you.

Peter Thiel: Thanks for having me.

You can watch the full conversation here:


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