Party Like Its 1990’s: Becoming Contrarians

You have to be kidding me if you called yourself a startup enthusiast and didn’t know who Peter Thiel is. He co-founded the game-changing company PayPal with Elon Musk (SpaceX, Tesla) and Max Levchin (Yelp, Slide). Thiel, along with his co-founders are also credited with creating the powerhouse breed of entrepreneurs popularly known as the PayPal Mafia.

Also, he co-founded the elusive company, Palantir Technologies, that creates some of the smartest software tools used by the planet’s largest corporations and governments today. On top of all that, he is a venture capitalist, known for his bet as first outside investor in Facebook, a hedge fund manager, and a philanthropist.

He has written a couple of books, of which the most popular is indeed Zero to One. So here we are exploring one of the central ideas ─ learnings from the dot-com bubble, outlined in this classic work, which is primarily focussed on those who want to create something new, thus going from zero to one.

The world was mad with dot-com fever when Thiel founded PayPal in 1998. Dozens of launch and funding parties were held every week in San Francisco. Funds were just flooding in the Valley. And as though the smart money madness wasn’t enough, public markets too, did not know any better.

Thiel was one of the very few who saw it coming. PayPal’s early 2000 venture round, right before the crash, valued it at ‘only’ 500 million or so. Thiel calmly told his panicky board that this was just a bubble at its peak and they should take every dime it could right then. And after the crash, he vehemently argued that the equity bubble had shifted onto the housing market. And he was so right! And as per him, what later took the place of the housing bubble, was higher education.

In March 2000, NASDAQ reached its peak at 5,048 and fell to 3,321 in three week’s time. The party was over.

As sketched out in Zero to One, entrepreneurs who stuck with the Silicon Valley learned four big lessons from the dot-com crash, that usher business thinking even today.

1. Making incremental advances

What inflated the bubble were grand visions. Thus investors must be prudent of anyone who claims to be great, and those wanting to change the world must be humble and unassuming.  Small incremental steps are the safe way forward.

2. Stay lean and flexible

All companies must remain lean and look at entrepreneurship as experimentation. Planning makes you rigid and arrogant. So instead of following a strict course of action, you must try out new things, iterate, and reiterate.

3. Improve on competition

Startups should not try and create new markets but should make improvements on already existing recognizable products, and start with an already existing customer.

4. Your focus should be the product, not sales

Technology and innovation are more centric to the product development than its distribution. If the product can’t sell itself, it’s not good enough. Viral growth is the only sustainable path to growth, as proven by the advertising spends of the dot-com companies that proved to be wasteful.

These lessons became the dogma in the startup world. And here he plays the devil’s advocate when he says that the opposites seem to be more correct. He says the following.

1) It is better to risk boldness than triviality.

2) A bad plan is better than no plan.

3) Competitive markets destroy profits.

4) Sales matter just as much as the product.

For him, you must challenge the dogmas if you have set out to build the future. But this is not to say that what is commonly believed is necessarily wrong.   

Without a doubt, neither set of learnings is entirely right or wrong. Because there can be no rules of thumb. It is you who shall figure what is the right thing to do for your businesses at what point in time. Reactions to past mistakes can be as wrong as the mistakes themselves. You must be pragmatic, and never afraid of being labeled as contrarian if you didn’t do what they said.  But being contrarian too is actually slightly contrary to what you might have thought it to be.

As Thiel puts it, “The most contrarian thing of all is not to oppose the crowd but to think for yourself.”