Review of Peter Thiels’ ‘rare thing: a concise [and] thought-provoking book on entrepreneurship’.

I bought this book in a bookstore in Berlin roughly a week after the LWCW, with two others (will be linked here after reviewed, ‘Mark Manson: Everything is f*cked’ and ‘Seven Habits of Highly Effective People’). This was some time ago, and I finally got around to reading it. Here are my thoughts about it, ordered by chapters.

Notes

This is a collection of my notes about this book, particularly things I was not aware of, or concise phrasing I wanted to share. Even though you might substitute reading this instead of the book itself, a summary can only give you so much information about the contents’ implications. In my opinion, the implications are the biggest part of the book, and that part is (mainly) missing.

Instead, I took the liberty of ‘connecting’ the content with topics I am already familiar with, explaining it. This effectively means, if you wonder why something you read here is not in the book - it never was.


1 Challenge of the Future

A whole lot of people complain: ‘Even if I were Steve Jobs, Apple has been made already’. Well the great thing about Steve Jobs is not that he made Apple, but that he would have been successful in his own way, no matter what he would have done. The same story is with Bill Gates or Elon Musk. No matter how successful they are today, they certainly did not start out like that.

There is this massive difference of vertical progress (creating something where there was nothing previously, going from zero to one) vs horizontal progress (taking something existing and scaling it up, going from one to n), as it is severely harder to create something new, where nothing has been before.

One question Peter Thiel asks in every interview is the following:

What important truth do very few people agree with you on?

There is a couple bad answers, such as ‘common’ general truths, that are being told as if no one knew about them. It is not about them. It is about those, for which it is inevitable that someone will be offended. It is about those where most people are under the illusion that it is not the case, and some hold that belief very dear. It is about capability to think for yourself, and stand for yourself.

The other part is that being a founder requires your own thinking, and you yourself need to be capable of finding actual secrets, truths, of the world, regardless of what others believe. Why is that necessary? Because those are the things you can build a business on - better it be something most people don’t see.

Now his own answer to that question is that even though most people think that the future of the world will be defined by globalization, he thinks that the truth is that technology matters more.

He then boils this down to something among like this: Startups need to be small groups, simply because it is the least number of people you have to convince of your newly found truth with which you can actually get something done.

If you were to ask me, my answer would be: Even though most would say that they can do everything, and that the world is open for them, the truth is that this is only the case if you actually say no to almost everything in the first place. Only then can one become good at something - there are specific paths for everything, but not going any one will leave you as a master of none.


2 Party Like it’s 1999

One of the core most important necessary things to clear thinking is to question what you know about the past. Here he presents the case of the dotcom-mania, and focuses especially on the mania part, where everyone could do everything (even starting twelve companies at once was seen as a ‘winning combination’), and would get funding for that.

After the burst, he makes a case for the apparently learned four lessons. Your company should …

  • do small incremental advances to an unknown direction
  • be lean and flexibly iterating, adapting where to go
  • create something for which there are customers (already), instead of creating entirely new things
  • focus on the product, not on sales (as it will sell itself if it is good enough)

However, his own claim is that probably the opposite is more true instead:

  • Better to risk boldness than triviality
  • A bad plan is better than no plan
  • Competitive markets destroy profits
  • Sales matters just as much as product

He will cover a few of these topics in detail later on as well.

He then ends with the following question:

How much of what you know about business is shaped by mistaken reactions to past mistakes?


3 All Happy Companies are Different

The main important question he asks here is the following:

What valuable company is nobody building?

Now a huge point he is trying to make is that all ‘happy’ and successful companies dominate their market. Those who do not, where there is more businesses than necessary and companies without end, it is ‘cutthroat business’ and they do not have the capacity to think far in the future, as that future might then not come for them.

This makes a case for innovation, as being ahead of competition and being able to make money is a massive incentive. This also allows companies to think about more than thinking about money, and i.e. creating a nice atmosphere to work in, or more benefits for their workers. Companies not having a monopoly are barely different from each other, as every small working improvement will immediately be copied from the competing ones - they could go out of business soon otherwise.

He also compares the competitive equilibrium to the heat death of the universe, as there will be no progress happening from these companies.

Monopoly is the condition of every successful business.


4 The Ideology of Competition

Competition is one of the ideologies permeated in current society, and there are a couple of cases mentioned against it. Both individuals and companies tend to lose sight of what matters, when they compete too heavily - they try to imitate each other, to also gain a share in a market that is owned by an entirely different company. Take the case for Microsoft with Bing, and Google with ChromeOS. They did invest a lot of resources in competing with the other … surprisingly, without creating something considerably better.

the focus was not on productivity, the focus was on beating the enemy

Is what he describes as the mood of PayPal’s early days when competing with X.com.

There is this quote from my father that came to mind:

If you have a clearly defined enemy, the structure of your day is clear.

This appears to have been the case here, and there certainly is a case made for competition, but not like this. This type of competition is not beneficial for anyone, and usually the only way to get them to work together again is a ‘greater threat’, that requires them to work together. If you think this is a rare occurrence, you might want to take a look at the robbers cave experiment.


5 Last Mover Advantage

Companies’ values appears to be mainly based on potential future earnings and much less on current performance or income. Examples here are Twitter and LinkedIn, but a much more recent example would be Tesla passing the valuation of Volkswagen. This is even though Tesla had considerable less income or revenue, which is partially because Tesla produces a fraction of the cars Volkswagen does (367k vs 11mio in 2019).

Why is it that TSLA is valued higher? A huge part of the reason is because Tesla has enormous potential to create value in the ‘far’ future, potentially more than all other current car makers combined. This ‘far’ future however, is close enough to still be within grasp - the main reason people are betting on this future.

Will this business still be around a decade from now?

There is a point made for the durability of a business. This durability might be based on one or more of the following points:

  • Proprietary technology being at least 10x better than the competition in a dimension that matters
  • Network effects: social pressure to use it/it becomes better or cheaper by more people using it (e.g. Facebook, amazon)
  • Economies of scale / potential for easy massive scaling (software is easier to duplicate/deploy and scale than training teachers for more yoga classes)
  • Branding: create a strong brand with a name, becoming synonymous with positive values, up to becoming an entry in the dictionary (e.g. Let me google that …)

One of the main questions arises, how do you build such a monopoly?

  • Start with a very small market and dominate it
  • Scale to adjacent markets fast
  • Do try not to disrupt sleeping giants too early

Or at least, that is how almost all currently existing ones started.

Make sure to heed the first and third point, since when trying to dominate a huuge market with fierce competition, the competition will try to get rid of you quite fast. So, start with a very small (ideally ignored) market first, and utterly dominate. At this point, you can start to scale fast. And if there are reasons you should still be around in a decade, you can take a jab at the giants …

you must study the endgame before everything else.


6 You Are Not a Lottery Ticket

The main point here is that while chances exist, and you may very well attribute achievements to luck, luck can be created, engineered and set up. There will always be some good and bad things happening, and you can attribute that to luck, but you can also create chances in which these things happen intentionally, and prepare for them in advance.

So, if you got your priorities straight and do some decent planning and designing, you will be ‘lucky’ - success comes to the prepared.


7 Follow the Money

This chapter contains some really well thought through applications of the power law, and its massive implications, especially for businesses. Simply that part, simple with business examples, would be worth it for a lot of people.

You might instead be familiar with the classic 80/20-Pareto principle, basically saying that 20 percent of the effort get 80 percent of the results.

One of the implications is the following: As a Venture Capital fund, however much you are giving out, you should not even think about investing in companies that do not have the potential of becoming more valuable than the entire fund.

Why? Because most will not, and those that will are required to keep the fund going.


8 Secrets

Contrarian thinking does not make any sense unless the world still has secrets left to give up.

Which is to say, reality has a whole lot of secrets left for us to find. One of them might be the following: Even though there are things that seem impossible, not all of them actually are. Sometimes it would not hurt to just try the impossible.

Needless to say, you need to actually look for secrets, if you want to find them. Being able to recognize them is a different beast altogether. Usually, secrets (valuable for businesses) can be found by being answers to the two following questions:

  • What secrets is nature not telling you?
  • What secrets are people not telling you?

Now, whom to tell your secrets? Whoever you need to, and no more.


9 Foundations

A startup messed up at its foundation cannot be fixed.

There is a couple of things to not get wrong. The original founders should have a history of working together previous to founding the company. Why? Easy, marrying someone you met for the first time can work out, but most cases certainly do not. And well, your relationship will be stress-tested.

You need to figure out how to divide ownership (stock), possession (day-to-day business) and control (of affairs) of your new company. Boards are fine, but the bigger they are, the more inefficient they tend to be. Three to five people, no more.

Counter-intuitively, the companies paying their CEO less were more successful than those paying more. Think of Steve Jobs - he got a $1 salary every year (also resulting in this funny anecdote). Their description is akin to being a ‘volunteer’.

This is necessary, as money is akin to status and prevents you from taking the necessary risks to become successful - as someone with ‘higher’ status tends to try to keep this status - which is likely to doom your startup long-term.

Also, there is a couple of traits to get right, the most fundamental one being ‘openness to invention’. The reason is that it is impossible to get everything right from the get go - continue to innovate, and you will get things working eventually.


10 The Mechanics of Mafia

Think about the ideal workplace, how does it look like? A lot of green plants, big offices, opportunities for table tennis and recreation in general? Well, sure, these look good, but they do not have substance. These things will not get anything done. What will get something done?

Purely professional contact during working hours is not sufficient either. Think about what would make people wanting to come to work, even if they would not get paid.

One of the ideas here is that you hire people for working on a conspiracy - your conspiracy. Remember your secret? Why should the 20th employee join your company? There is no general answer, as every answer for this should be specific to YOUR company. Have an answer, to what is your mission, and who would ‘fit’ in your team.

everyone in your company should be different in the same way

Initially, this is a decent hiring policy. Take nerds: they tend to have massive cultural clashes with purely financial guys, as they just work quite differently. They work best with each other. Throw a bunch of them together and amazing things will happen - best you be one of them.

every individual should be sharply distinguished by their work

This is important. Evaluate everyone for one thing, and for that thing only. Everyone will take on more responsibilities than they signed up for, and that is necessary, especially in early days. Still, evaluate them for only one thing, and that thing being different for everyone. This way you prevent them from ‘competing’ on projects they do together, improving efficiency and results.

[…] you don’t need to worry if your company does not make sense to conventional professionals. Better to be called a cult - or even a mafia.


11 If You Build It, Will They Come?

The main question being: Having built something really awesome, will people (be able to) buy it? For that, you should make it apparent on how someone can buy your product, and make that as easy as possible. People do not like being sold, keep that in mind. People tend to buy feelings, not products, even if it is the ‘feeling’ of being rational. For that, you should build something good enough that people want to buy it - as soon as they hear about it. It really is hard to make sales look easy.

Start small. Get a couple of references first - do not try to sell to the big ones only. They will not want anything from you, since you do not have any references yet. Start out with getting people and companies interested, starting small, and offer bigger packs along the way, the more references you have. Start small, then scale, in sales as well.

Marketing is something big companies are pretty proud of - do not try to compete with them, you will lose. Utterly. Their monthly marketing budget is bigger than what your revenue should be in three years - do not even think about it.

You only need to get one distribution channel right.

everybody sells. Look around, if you do not see any salespeople, you are the salesperson.


12 Man and Machine

Computers are quickly getting better, but they are still some time away from even remotely replacing humans entirely. More so, they allow professionals (farmers, lawyers, doctors, …) to do their work more efficiently. This will only improve - take this dualism, computers being good with large amount of numbers, and humans being good at all the other things.

Computers are part of an ideology, and they will continue helping humans to solver ever harder problems. Ideally, you have a business model gaining an advantage by the future improvement of computers.


13 Seeing Green

Here there is a small history lesson on the clean-tech bubble, and a recap of seven important questions, every business needs to answer:

Engineering: Can you create breakthrough technology, instead of incremental improvements?

It needs to be better by at least a magnitude (10x) for transparent superiority. Why should anyone bother buying your stuff over the competition?

Timing: Is now the right time to start your particular business?

There might be chances to get money easier right now, or in a couple of years - did the bubble burst just recently? You might want to wait some time then. Entering a slow moving market might be good, if you have a solid strategy to take it over.

Monopoly: Are you starting with a big share of a small business?

Make sure to dominate a meaningful market - one that exists and people care about, containing money.

People: Do you have the right team?

Technologists tend to wear jeans and T-shirts, as the best sales(man) are hidden. They made it a rule to pass everyone wearing a suit - if they look like a salesperson already, do they really understand what they do in the first place?

Distribution: Do you have a way to not just create but deliver your product?

Make your product accessible and get one distribution channel to work. Do not care about the five dozen possible ways, get one to working, and expand on it. Not multiple.

Durability: Will your market position be defensible in 10 or 20 years into the future?

What will another company stop to wipe you out, to take your entire market share? Make your position defensible, not just today, but tomorrow as well.

Secret: Have you identified a unique opportunity that others do not see?

Have a secret, a specific reason for success that other people will not see, and build upon it. Tell it to everyone necessary, but no one else.

And always remember:

No sector will ever be so important that merely participating in it will be enough to build a great company.


14 The Founders Paradox

Traits among people are distributed roughly with the normal distribution. But founders … tend to have a combination of extreme reinforcing traits. Take extravagance, are they extravagant because they are successful or are they successful because they are extravagant? And for some reason, they combine a couple of seemingly complementary traits - however, make sure to be grounded in reality.

The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.


Review

Wow, what a book. Even though most things were pretty much known beforehand, it is nice seeing them written down like that. This is a good collection of ‘basic general truths’ about startups and reality in general. It gives a good glimpse in how to evaluate businesses, and maybe stay away from those that will certainly fail. I guess that going by these recommendations does not ensure success, but it at least makes success possible.

Main Takeaways

  1. Successful people are not successful because of what they did, but why they did what they did and how they did it
  2. Build up from first principles
  3. Have a healthy relationship about competition, and something to strive for
  4. Chances happen randomly, be prepared to become lucky
  5. VCs will not fund non-massive-return-opportunities
  6. A strong foundation and team spirit is key to success
  7. Marketing is much more important than most people realize
  8. You build for the future only, so if there is no chance to continue existing in the future, don’t build it

Criticism

I think most things check out, even though some are portraied as more contrarian than they actually are in the grand scheme of things. My biggest criticism is that I barely remembered any content explicitly after some just a few weeks after reading it.

Would I recommend it? Certainly if you are new to the topic, but if you’ve been around for some time there will barely be anything really new in it. On the other hand, it will probably stay sort of a ‘go-to’ reference book, not without reason.

Favourite Quotes

Among the ones cited before, here are some mentions of particular interesting phrases mentioned in the book:

Madness is rare in individuals - but in groups, parties, nations and ages it is the rule - Nietzsche

If your product requires advertising or salespeople to sell it, it’s not good enough

the only sustainable growth is viral growth

Feedback

You read the book as well and I paraphrased something wrong, or misunderstood a whole chapter? Do reach out to me, I am very happy to talk about these interpretations, and maybe change my mind!


Meta So I’m experimenting in how to better read books currently. The approach for GTD was to simply recapitulate each chapter in it’s ‘full’ content, but I don’t think it was that successful. One of the obstacles was the continuous lagging behind. Like, I’ve read a few chapters more, but this is not yet reflected in the post about it. So I tried to, instead, just write down the overall notes, while sorting them in chapters and going in as much detail as necessary. I’ll probably keep it that way.


Edits:

  • 2020-02-01: added Criticism
  • 2020-05-28: added main takeaways and reordered the ‘Overall’ Section based on the template
  • 2020-05-28: updated criticism