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Zero to one-to-one

19 September 2014 By Richard Beales

A venture capitalist who can co-opt the opening lines of “Anna Karenina” to make a business point deserves attention. In Peter Thiel’s case, he also started PayPal and Palantir Technologies and invested early on in Facebook. His new book, “Zero to One,” describes possible features of the next peerless, world-changing startup – another Google, say.

In contrast, “The Hard Thing About Hard Things” by Ben Horowitz, who cofounded a hugely successful venture capital firm with Marc Andreessen, majors on how to run a technology company when competition is fierce. The two books both bring a mix of new and old perspectives on Silicon Valley and all its contradictions, usually with commendable clarity.

Thiel’s title gets at the difference between incremental change, from one to two or three, and true innovation – creating something from nothing. “Positively defined,” he says, “a startup is the largest group of people you can convince of a plan to build a different future.” Thiel worries that the legacy of the last dot-com bust has led many entrepreneurs to stick to incremental changes, copycat ideas and caution when big ideas and boldness are the keys to real progress – and riches.

Thiel says he likes to ask people he is interviewing: “What important truth do very few people agree with you on?” This sort of grandiosity goes along with sweeping generalizations, like his Founders Fund’s rule not to invest in any tech company whose chief executive wears a suit, and with the scattering of erudite references in his text. It can grate a little. His ruminations on macroeconomics and the philosophy of man versus machine are less compelling than his discussion of technology and startups.

Yet much of the relatively short book deals in genuinely thought-provoking ideas. One is that the last thing a truly ambitious startup should want is to be “disruptive,” in the sense of challenging competitors in an existing market, however large. Competition means constant battles and low profitability. What brings huge scale, big margins and the resources to do really interesting things is the monopoly power that comes with products that no one else has really thought of, or at least got right, but lots of people turn out to want – Google’s search engine or Apple’s iPhone, for instance.

Thiel also points out that an investor, and anyone else affected, should carefully consider what startups define as their markets. Monopolists, once established, tend to obscure their monopolies with the widest possible definitions. But new company founders – aware that they need to show they will dominate – are inclined towards a narrow definition that may dramatically understate the competitive threat that already exists.

Then there is Thiel’s law, as his friends call it: “A startup messed up at its foundation cannot be fixed.” This is a reminder that even seemingly effortless success is almost always properly prepared for. The same can be said of athletic or artistic achievements.

Thiel argues that only startups which have the potential to change the world deserve venture capital funding. Otherwise, VC firms will not do well, since almost all investments will inevitably turn out to be duds. The low success rate explains why Thiel, who probably sees just about every startup, can do better than VC funds that aren’t entrepreneurs’ first ports of call. But the desire for superstars limits the funding available in the VC world for businesses with perfectly respectable prospects.

All this seems a bit remote from the existential struggles described by Horowitz. He guided Opsware and its predecessor Loudcloud through the early 2000s, extremely tough times for tech companies in the wake of the bursting of the internet bubble of the late 1990s.

But there’s an instructive overlap between the two financiers’ observations. Both Horowitz and Thiel emphasize the importance of choosing your partners and employees with care, keeping them motivated, managing them actively, communicating openly and letting a company’s culture flow from the products and the people – rather than attempting to create it artificially.

This harks back to that deceptive effortlessness. Though creators of startups may do this kind of background work in idiosyncratic ways, they still do it. Mark Zuckerberg at Facebook maintains a policy of title deflation, Horowitz explains, ensuring that new hires mostly go down a notch or two from what was written on their previous business card. It’s a deliberate and thought-through approach – Zuckerberg isn’t just a code monkey.

Horowitz is honest about his failings as an inexperienced CEO. He doesn’t claim to have mastered the task – and as a VC bigwig he doesn’t really do it any more – but he is thoughtful about how to do it better.

For instance, he views it as a CEO’s responsibility to train key members of his or her staff, not outsource the job to outsiders. Maybe more bosses should do that, in all areas of business. The recognition that different people will do particular jobs better or worse in different circumstances is also valuable, including the idea that there are “peacetime” CEOs and “wartime” CEOs with completely different skills.

Like Thiel, Horowitz claims no recipe for success. Instead, he lays out experiences and makes suggestions to help with recruiting, firing people, setting strategy and, perhaps above all, focusing on the right things – broadly what will make a company succeed – rather than the wrong ones, which include defensive moves to avoid failure. Anecdotes enliven the text, including a blistering critique of Ernst & Young. It’s a fair bet the auditing firm still doesn’t get hired if Andreessen Horowitz has anything to do with it.

What Horowitz describes is all a lot more down-to-earth than anything in Thiel’s more conceptual tome. But maybe that’s in line with the very different threads Silicon Valley somehow manages to weave together. One book is mainly about vision, the other is much more focused on what, for most people, is reality.

 

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