Saturday, November 01, 2014

Peter Thiel, the PayPal Mafia and the Beatnik poets

Image : PayPal Mafia, one of the most influential entrepreneurial creativity and intellectuals
This is part 2 of  Rescale, a textbook Zero to One startup, the previous blog entry. What Peter Thiel says in Zero to One goes beyond entrepreneurship
Unless they invest in the difficult task of creating new things, American companies will fail in the future no matter how big their profits remain today. What happens when we’ve gained everything to be had from fine-tuning the old lines of business that we’ve inherited? Unlikely as it sounds , the answer threatens to be far worse than the crisis of 2008. Today’s “best practices” lead to dead ends; the best paths are new and untried. In a world of gigantic administrative bureaucracies both public and private, searching for a new path might seem like hoping for a miracle. Actually, if American business is going to succeed, we are going to need hundreds, or even thousands, of miracles. This would be depressing but for one crucial fact: humans are distinguished from other species by our ability to work miracles. We call these miracles technology.
Thiel, Peter; Masters, Blake (2014-09-16). Zero to One: Notes on Startups, or How to Build the Future (Kindle Locations 49-55). Crown Publishing Group. Kindle Edition. 
The book is was  #1 best seller in New York Times list in September.Now it moved to slot#2.  This book impressed Robert Murdoch. which I did not expect
Blake Masters, Peter Thiel's student at Stanford, took accurate notes on a course on entrepreneurship.  and he is the co-author; a stroke of luck for him.

Image 2: Chabad emissaries meeting in a Brooklyn warehouse

The Kabbalistic Nuance in Zero to One

You may ask: what the two photos  above - Image 1 and Image 2 - have in common? It is something called Kabbalah. Or maybe Sufism, but what I know better is Jewish thought, who outsiders unjustly call it mystical. In Jewish thought , the observant or secular equally believe , the divine is just part of our  day to day life.

Peter Thiel wrote the book from notes of one of his disciple at Stanford.  This is the tradition among greatest Rabbis. Isaac Luria used to deliver his lectures extemporaneously and did not write much, The real exponent of his kabbalistic system was his devout follower Rabbi Hayyim Vital. He collected all the notes of the lectures which Luria's disciples had made

The concept of zero-to-one is not easily understood. Only a minority can really use this - in essence this abstract concept - without trivializing the idea. In fact it will be a disaster  if everyone starts 0 to 1 companies, in which we "don't care" when we will make a profit or if we make profit at all. This is why the kabbalists did not accept anyone except their hand picked students among their ranks. They refer to their discoveries as "secrets",  hidden behind their visible appearance

The Pay Pal mafia are accomplished famous entrepreneurs who are not me-too (or 1 to n, in the definition of Peter Thiel's book). They understand and complement each other and their success is way, way above the median

Other  similarity to Kabbalists is the use of the word "miracles'. Let me copy from above for convenience:
...  if American business is going to succeed, we are going to need hundreds, or even thousands, of miracles. This would be depressing but for one crucial fact: humans are distinguished from other species by our ability to work miracles. We call these miracles technology.
In my humble opinion, we don't call these miracles, technology.  The miracles are inside the people who create this technology, and one wonders who placed this ability in some, very few of us. The technology doesn't create itself. What Peter Thiel's book  tells us is that we have inside  a potential to release miracles we don't know that exist. The miracles are there, in a latent state inside people who are similar to Holy Man

What is a Holy Man?

"Life as we see it is not all there is. There is more to existence than our physical and material concerns. When we reach above the mundane and seek to connect with a Transcendent Being – that is an act of holiness. Some of us are more holy than others, to be sure. The holy person may be an exalted figure or someone simple – possibly your grocer – but you may feel that he is connected with something “other,” that he is constantly thinking, feeling and experiencing a connection to something beyond our ordinary comprehension. knowledge."
This quote is from a book by Adin Steinsaltz , the greatest Talmud Scholar alive today.
There are people who write important books, others who do great deeds and still others who produce pearls of wisdom – all possibly great people, each on his or her own level. But a tzaddik, (A holy man)  specifically one who is “the foundation of the world,”  is likely to have been born a tzaddik?  In secular terms, the same is true of the genius. Geniuses are born that way, but they nonetheless have to develop their talent. Not everyone born with this potential actually develops into an acclaimed genius. One may have an affinity for beauty and a gift for words, yet remain unrecognized, his contribution merely a stillbirth.
So, we need to help the miracles with a rational work. Let take Rescale, a typical zero to one start op. The founders knew they had a great idea, never done before. But justly because it wasn't done before, it needs work to see who really are the customers versus the customers founders believed they will have. If we want to pivot the product,  pivot for whom? Here is a Minimum Viable Product self-explanatory graphic circulating on LinkedIn. It is from Aarron Walter

Image 3, courtesy of Aarron Walter
The 0-to-1 products, just because are zero-to-one products, are not going to succeed automatically by dabbling with functionality. We need to convey emotion and create habits. But emotion for whom, if we do not know yet who are the the people who will become users? We to do some customer development, outside and inside the group of users the founders thought are the market.

In the case of Pay Pal, the original ideas was to use palm pilot to transfer and make money payments. It did not work. Surely the skeptics, the non-kabbalists, felt a Schadenfreude . How can one compete with banks? How can one compete with credit cards? This was the 1 to n thinking. Pay Pal started using email, and the whole thing exploded. I don't think it was so much technology, as the idea to switch. Bingo! Is this called luck? No it is called a miracle. But the customers were not flocking to embrace Pay Pal. Peter decided to pay each user $10, and yes, they got users, but the method was unsustainable.

The Poets

The idea of zero-to-one meets poetry. Poetry is something one reads over and over with the same pleasure as if it were the first time, Our feelings make us dream and act
“I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
This is the most quoted words from Maya Angelou  the African American great poet.
Image 4: Allen Ginsberg, Peter Orlovsky, Barbara Rubin, Bob Dylan, and Daniel Kramer backstage at McCarter Theater, in Princeton, New Jersey,1975
The people in the photo above are the American beatnik  poets. They made possible  books like Zero to One today and in a way they anticipated Silicon Valley

Bob Dylan's song The Times They Are A-Changin' ends with these words
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin'
And the first one now
Will later be last
For the times they are a-changin'.
Peter Thiel words are similar:
"No one can predict the future exactly, but we know two things: it’s going to be different, and it must be rooted in today’s world. Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future."
Here is a practical response to from the book Zero-to-One to Bob Dylan song, whose emotional impact among Americans is enormous. So here are the action items:
 "Startups operate on the principle that you need to work with other people to get the work done, but you also need to stay small enough so that you actually can. Positively defined, a startup is the largest group of people you can convince of a plan to build a different future"
This is the best definition of the Pay Pal Mafia in the first photo above. The irony is the majority of them are born outside USA. Many of them are born in old communist countries, (like me). Peter Thiel  himself is born in Frankfurt and  his parents moved to California when he was one year old.

The Facebook experience

This the voice over in the movie "The Social Network" before a character named Peter Thiel appears first time:
INT. THIEL’S OUTER OFFICE - DAY
We’re in the offices of a guy who’s hero is Gordon Gekko. MARK
and SEAN are waiting--seated side by side--for a verdict.
SEAN’s wearing his best Prada, MARK’s wearing his hoodie and
Adidas flip-flops.
 Gordon Gekko is a fictional character in the 1987 film Wall Street by Oliver Stone. Wikipedia says:  "Gekko has become a symbol in popular culture for unrestrained greed (with the signature line, "Greed, for lack of a better word, is good")"

Where did  the scriptwriter Aaron Sorkin get this analogy? Incredible what "I-don't-care" maliciousness  film scriptwriters ad,  hoping to sell a picture better.

Image 5: Actor Wallace Langham as Peter Thiel in the The Social Network, versus the real Thiel
The movie is based on a book by Ben Mezrich, "The accidental billionaires. The Founding of Facebook: A Tale of Sex, Money, Genius and Betrayal ". This is how the same scene is described by Ben Mezrich, based on interviews with Sean Parker and Eduardo Saverin.
"Peter's going to love you" Sean told Mark and Eduardo
 Why? Because.
Peter Thiel—the founding force behind the incredibly successful company PayPal, head of the multibillion-dollar venture fund Clarium Capital, former chess maşter, and one of the richest men in the country—was intimidating, fast-talking, and a true genius—but he was also exactly the sort of angel investor who had the guts and the foresight to understand how important—how groundbreaking—the facebook had the potential to be. Because Thiel, like Sean Parker and Mark Zuckerberg, was more than just an entrepreneur: he saw himself as a revolutionary.
Yes! Ben Mezrich nagged it down. Facebook got $500,000  seed, but "it wasn't life-changing money, it wasn't empire making money, it was wasn't fuck-you money... Seed money... enough to get them through the next few month.

In exchange, Thiel would get 7% shares  and would become a member of the five directors board, but Thiel becomes the guiding force leading facebook - together with Sean and Mark. Mark will keep the lion share of the company.

Musings: Peter Thiel, Ben Horowitz, Linda Rottenberg, Karl Marx, Chabad, and  Alexander and the Terrible, Horrible, No Good, Very Bad Day

This book, Zero-to-One announced itself in Peter's Thiel mind in those Facebook moments. The three of them: Peter, Sean and Mark are revolutionaries. American Revolutionaries who are fabulously rich, not from inheriting money.  And not like Karl Marx struggling to make the ends meet in London at the end of his life and died in poverty.

I imagine, as a useless thought, what would have had happen if Karl Marx had an opportunity to work and teach at an American university. He would have had an agent to represent him, suggesting how to modify the "Das Kapital" for a local audience, so he sell more copies. He would demand $100,000 plus for every invitation to speak. But most important his thoughts would have had been altered by a new reality.

The Peter Thiel style of revolutionary is a permanent "being born" state and he's inspired by Bob Dylan, again:
Bob Dylan has said that he who is not busy being born is busy dying. If he’s right, being born doesn’t happen at just one moment— you might even continue to do it somehow, poetically at least. The founding moment of a company, however, really does happen just once: only at the very start do you have the opportunity to set the rules that will align people toward the creation of value in the future. The most valuable kind of company maintains an openness to invention that is most characteristic of beginnings .
This leads to a second, less obvious understanding of the founding: it lasts as long as a company is creating new things, and it ends when creation stops. If you get the founding moment right, you can do more than create a valuable company: you can steer its distant future toward the creation of new things instead of the stewardship of inherited success. You might even extend its founding indefinitely.
I have read and reviewed recently books by Ben Horowitz "The Hard Thing about the Hard Things" where miracles occur all the time (for example, how Andreeseen, 22 hired Ben in Netscape, after his recruiters dismissed him because did not come from Harvard or Stanford;  in a nutshell,  how  Marc, changed Ben's life).

But for Ben these are coincidences, trivia. The main idea of the book is this discovery:
"it is easier to make a CEO from a technical founder, rather than bringing  in the so called "professional CEO". When Adreeseen Horowitz started the great majority of VCs "were better designed to replace the founder, rather than help the founder grow and succeed"
Ben does not talk of replicable miracles - a miracle I might hope to happen to me as it happened to you. Unlike Peter Thiel, he does not spell out with clarity what Andreeseeen Horowitz know also does very well: investments that appeared crazy and which later proved mind boggling successful. Zero-to-One made me understand better Ben Horowitz book.

I also read and internalized Linda Rottenberg's Crazy Is a Compliment: The Power of Zigging When Everyone Else Zags Linda studied law at Yale University and Peter Thiel is a J.D. from Stanford Law School.  Both gave up being lawyers with very well paid jobs. Linda knows the most influential people in the world.  Reid Hoffman, LinkedIn founder and Sheryl Sandberg, COO of Facebook wrote blurbs for her book. Linda lists her achievements as a founder of Endeavor
The heartbeat of Endeavor is the thousands of individuals in more than twenty countries who devote themselves to spreading the spirit of entrepreneurship. Led by an amazing squad of managing directors, these trailblazers serve on our boards, sit on our selection panels, spend countless hours mentoring entrepreneurs, and fervidly commit themselves to the idea that business can be a force for good. 
This made me think, while writing here, about an analogy to Chabad movement emissaries (shlichim) in Image 2 above. They are tens of thousands worldwide. Endeavor spreads entrepreneurship in an evangelical way. Quoting Washington Post, very similar to Chabad.
 Jewish tradition tells us, God willing, there will be a time when there will be a redeemer, messiach [messiah] The Rebbe (Menachem Schneerson)  said. God willing, that it will happen soon. And the world will be a peaceful world. “Don’t focus on the who of the redeemer but on the how we reach it.”
If we replace the word "Jewish Tradition" with "Entrepreneurship". Linda Rothenberg's Endeavor is telling people outside that there is a messiah.

Peter Thiel's book Zero to One uses subconsciously the great Rabbi wisdom. He teaches us how to reach abundance in the future, starting from present. He does not care about Messiah's identity. This is why a company like Pay Pal or Facebook with world wide coverage will very unlikely come from organizations like Endeavor.

Last night I saw a family movie: Alexander and the Terrible, Horrible, No Good, Very Bad Day
The character of Steve Carell, named Ben, a middle aged father of four tries desperately to get a job in a startup with founders half his age. He has to fight the terrible danger of age diversity which Ben Horowitz in his book defined like this:
... hiring your first senior people into your company, may feel like selling your soul, and if you are not careful, you may well end up selling the soul of your company. You take risks and you have to win your race against time. This means acquiring your best talent, knowledge and experience even if it requires dealing with some serious age diversity.

Do you recognize in me?

One of the reasons I write this blog is because I am an entrepreneur and all my life I was crazy enough to aspire to things few other did. We sold a company, Gridware to Sun Mycrosystems in 2000, at the peak of the bubble, Peter draws these picture

Image 6: End 2000 is the end of dot.com boom

Image 7: End 2000 is the beginning of the dot.com bust
We thought we made it. We didn't. We thought this was a miracle. It wasn't.

But this is looking at the past. I am looking for people to share a future. And every day, without exception, there are miracles and wonders. Actually wonders happen every day to you, to them and to me.

And you read this blog, is because you also look at the same dream. If we share the future - not the present or the past - this could be a good start.
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