Peter Thiel on Startups, Buzzwords, and Complex Coordination

By Britt Benston

Legendary technology leader and venture capitalist Peter Thiel came to UCLA Anderson to share wisdom about many issues facing the startup world, and he placed great emphasis on uniqueness, trends and “complex coordination.”

Thiel, a founder and former CEO of PayPal and current partner of venture capital firm Founders Fund, delivered a confident keynote address to a packed Korn Hall, first advising against the trap of starting a company that hinges on uniqueness alone. You could be “the only British Nepalese fusion restaurant in Westwood” but it doesn’t mean you’re going to see success, he warned. Thiel pointed to his own success with PayPal and recommended that entrepreneurs pursue ventures in which a product or service is missing or needed, so there will be uniqueness; but there must also be a meaningful market share to gain (something he details at length in his New York Times number one bestseller Zero to One). PayPal had 40 percent of its market (payments by eBay power sellers) in its first year. He contrasted this example with starting up in the energy vertical, where there’s a $40+ billion market, but the possibility of entering and having a real differentiator and significant market share is, well, a bit ambitious.

“Just about all trends are badly overrated,” Thiel declared, about entrepreneurs always asking him what’s next. He commented on what he sees regularly: “Education software, health care IT software — very overrated trends. SAS, enterprise software — insanely overrated. If you hear the words big data or cloud computing, you need to think ‘fraud’ and run away as fast as possible.”

Why, he asks? “Because the buzzwords are symptomatic of a business or of a category where many people are doing them. The fact that you've heard certain buzzwords many times before, it’s a tell that you’re bluffing, that there’s nothing unique in your business. The more buzzwords you have, the less differentiated your business is.”

Perhaps none of his topics was as poignant as the successful products of what he calls complex coordination. The first example he cited was an accomplishment he credits to none other than Steve Jobs: the iPhone. It wasn’t an innovation of any one thing, he said. It broke through because it was “getting all these different pieces coordinated in just the right way. That included the incredible complexity of the manufacturing process set-up, the distribution, [and] marketing coordinated in just the right way. For some reason, that’s quite hard to do.”

Another example he brought up was Tesla, which he said “put all the components together in a completely new package. That’s the real creativity, and that includes the complex coordination of creating a dealer distribution system from scratch, where the dealers don’t make all the money, and it gets controlled by the car company instead. That’s probably what remains underrated about Tesla as a company and why it would be very hard for other companies to catch up; because you have to somehow rebuild everything at once, at that’s something that we’re taught not to do or think about.”

Thiel also covered the developing world as it continues to emulate the developed world to become part of the globalized economy. He stayed after the lecture and Q&A to speak with students and sign his book, Zero to One: Notes on Startups, or How to Build the Future.