Saturday, November 29, 2014

ENTRPRENEUR / INVESTOR SPECIAL ......The problem with 'management' is that it's strangely generic,

The problem with 'management' is that it's strangely generic


Technology entrepreneur and investor. That's the short bio for Peter Thiel. A more detailed one would read: Co-Founder of PayPal, Clarium, Plantir Technologies, Founders Fund,and The Thiel Foundation.
Thiel wears many hats: entrepreneur, investor and self-confessed conservative libertarian. Through his Founders Fund and personal investments, Thiel has invested in Elon Musk's SpaceX, Facebook, LinkedIn, Yelp, and Spotify.Yelp, and Spotify.

The Thiel Foundation, on the other hand, was set up to promote freedom in all its forms, be it political, personal or economic. In 2010, Thiel set up the Thiel Fellowship to identify and nurture the tech visionaries of the future. To this end, he has also formed Breakout Labs to help independent scientists, inventors and engineers to work on their most radical ideas.

Teaching a course on start-ups at his alma mater in 2012 set the foundation for his new book, Zero to One: Notes on Startups, or How to Build the Future, co-authored with Blake Masters. Drawing upon his experiences from hatching start-ups and investing, the book is about creating companies that create new things.
Meet PETER THIEL

- BA. Philosophy, Stanford;

- J.D., Stanford Law School

- He was a US-rated Chess Master and among the highest ranked players under 21.

- He was born in Germany, his parents moved to the USA when he was a year old.

- He founded 'The Stanford Review' with Norman Book in 1987, now the university's main conservative newspaper.

- He deeply influenced by Rene Girard's 'Things Hidden Since the Foundation of the World'.

- He is the co-producer of the film, Thank You for Smoking.

According to Thiel, it's important to learn from successful entrepreneurs but not to copy them. The man behind some of the most innovative tech companies in the world shoots straight and explains why the concept of management is more about politics than solving real problems. Edited excerpts:
What's the power law you talk about in the book?

A power law describes any exponential distribution. The distribution of success among companies is a concrete example: the most successful company in any given cohort will tend to be more valuable than every other company combined. That means the 200th employee of the most successful company will do vastly better than the founder and CEO of the 200th ranking company. It's the most important pattern in business, but it's hard to grasp intuitively because we rarely encounter such unevenness in our daily lives.
Do you believe that entrepreneurs don't benefit much from modern business education?

Business education is mostly irrelevant to entrepreneurs. You may meet some smart people while you're there, but when you take into account the opportunity cost, I think it ends up being a neutral or negative proposition.
If Peter Thiel was to give advice to would be entrepreneurs researching multiple ideas, what would be the key factors you would ask them to look at?

Three things matter for deciding whether to work on an idea. One, you should care strongly about getting it done. Two, you should have good reason to think it will actually work. And three, you should be the only one working on it. The first question is about your own motivation. The second question is about the substance of a specific plan. The third question is about avoiding competition. No general formula or checklist will help you to answer these fundamental questions. 

People are questioning your statement that Apple is not an innovator. Apple is often cited as the best example of a company that's led by game changing innovations. What's the logic behind that statement?

Both statements are true: the iPhone was a breakthrough, but successive versions of the iPhone have been incremental improvements. Those incremental improvements have made a lot of money  because of the monopolistic lead that Apple opened up at the start. Their phone business still generates such huge profits that Apple will struggle to invent anything that makes an impact by comparison, and that's why 
Tim Cook has the hardest job in Silicon Valley in following Steve Jobs.
An Indian e-commerce player Flipkart was valued upwards of $ 7 billion within 7 years of starting up. The company has been chasing topline growth aggressively and VCs are funding the growing losses. Is this a sustainable model?

Relentless reinvestment works when there is a definite plan for how to make profits in the future - even if that may be very far out in the future, as with Amazon, where Flipkart's founders used to work. I can't speak to the specifics of their plan, but I do think markets  always underrate longterm thinking.
Which three tenets of modern management do you disagree with?

One should be wary of "disruption" and "leanness," but it's much more important to understand that there is no formula for creating a uniquely valuable business. It's not that some buzzwords are good and others are bad; the point is that you don't become successful through buzzwords. The problem with "management" as a concept is that it's strangely generic: it's about how to administer a big organization, no matter what the organization is trying to do. That means it's really about politics rather than solving concrete problems.
Do you think society will benefit more if entrepreneurs focus more on other sectors than technology, which has been for some time been the poster boy of entrepreneurship? 

No — unless by "technology" you mean consumer software applications or information technology. I think new energy sources, textile materials, farming techniques, or medicines are all very much examples of technology, and very much in need of entrepreneurs. I would argue that it's only because of stalled progress outside computers that we have settled for such a limited definition of technology; in the first half of the 20th century, everyone understood it to include chemicals, aviation, agriculture, and dozens of other fields. I think that's what we need to get back to.
Why is old money (traditional business power houses) finding it difficult to get a grip over the digital economy?

I would flip this question around: it's not remarkable that old businesses have trouble dominating new fields. That is always going to be hard. What is really impressive and unusual is for an established company to create new things. For example, Apple's second wave of success required an extraordinary second founding by Steve Jobs. Most businesses don't have a founder available to take charge.
In which areas of the world economy do you see bubbles and in what areas do you see opportunities?

I think the biggest bubble is the government bubble, which starts with bonds and extends to anything that acts like a bond in generating income, for example blue chip equities that pay dividends. I think the opposite of the government bubble is in technology companies working to create products that will generate huge value in the future, no matter what the Fed does.
By when do you think the next big global idea like Facebook or airbnb will come from the emerging economies like India or China?

I predict that leadership will come from the richer countries, simply because new technology is the only way forward for a place like the United States. India and China both have incredibly talented and driven people, but they can create tremendous wealth just by moving peasants from the countryside into new cities. It's not easy to create new cities, but it doesn't necessarily require new technology.

By Priyanka Sangani, ET CD141121






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