Has innovation in technology hit a dry spell? That’s the concern of Peter Thiel, Co-Founder of PayPal, who got a warm welcome from the MIT crowd this week at the school’s Enterprise Forum series.
“Is there really as much progress as people say? In Silicon Valley, they will tell you yes, but stepping back… We need to dial the expectations back up and get back to working on the hard breakthrough on types of technologies that can really take our civilianization to the next level,” he said.
Thiel, who MIT calls the mentor of the PayPal mafia of entrepreneurs, has a nose for startup success. After PayPal was sold to eBay for $1.5 billion in 2002, Thiel launched global macro hedge fund Clarium Capital Management. An active venture capitalist, Thiel has the distinction of being Facebook‘s first outside investor and director. He also started Founders Fund with his PayPal partners Ken Howery and Luke Nosek.
During his presentation, which happened to come during Global Entrepreneurship Week, Thiel proposed the following tips for entrepreneurs:
- Choose to Go Into Business With People You Know: “People who have known each other for a long time tend to work well together,” Thiel said. He recalled that he was able to scale PayPal in part by going into business with people he knew, because everyone was already aware of each other’s strengths and weaknesses. He added jokingly that starting a company is like a marriage. It’s not enough to only have in common that you both want to get married. The most successful startups blossom because the entrepreneurs share common passions, he stressed.
- Make the Product Valuable for the Very First Person, Not Just the Millionth: Thiel and the PayPal team from the beginning formed the slogan of “PayPal: The New World Currency,” but they still knew to start small. He described how the company looked at how the product was being used and scaled it appropriately, such as by optimizing PayPal for buyers and sellers on eBay. “Make it valuable to the first person, not just the millionth person,” he said. “You don’t go from zero to a million. You go from zero to one to two to three…”
- Payments Startups Must Create the Network Effect: “A payments system or currency works because a lot of other people are using them,” said Thiel. “Successful payments systems have network effects.” He acknowledged that igniting a network effect is a challenge, particularly in a two-sided industry like payments where both consumers and merchants must take to the product.
- Look for Niche Opportunities: Thiel stated that the evolution of the Internet has mirrored, of all sectors, the automotive industry. Both cars and the Internet created boundless business opportunities after igniting in the marketplace during the 1920s and 1990s, respectively. Yet as time progressed, the window for success narrowed. (Thiel compared today’s eCommerce landscape to the development of the automotive industry into the 1950s, when after the initial boom, only those with unique propositions were able to gain traction.) Today, Thiel feels online business ventures are more likely to succeed if they address a niche community or problem.
- It’s All About the CEO’s Salary: Thiel said that he has found startups whose CEOs have salaries between $120,000 and $160,000 are most likely to succeed. Any lower and the CEO’s power is too close to that of investors, and any higher is too big at such an early stage for the company, according to Thiel. In addition, the CEO’s income is at the high end of the salary range for the company. By having the CEO set a modest salary range, Thiel advocated that entrepreneurs will be able to attract employees who believe in the startup rather those who are just “along for the ride.”
- Don’t Dwell on Failures: Thiel believes that business failures don’t serve as great learning cases. “You always have scapegoats when companies fail, usually the CEO, but it’s not at all clear that but for that, it would not have failed,” he said.
- Tech Skills Can Trump Business Savvy: Thiel said in many instances, hypothetically, he would prefer to invest in a company where everyone was an engineer rather than one where everyone had an MBA.
As for Thiel, it doesn’t appear he will be throwing his hat in the startup arena again anytime soon, citing that launching PayPal proved to be an intense experience.
“It was insane four-year period taking the company from four people to 900,” he said. “We had close to $200 million in revenue by fourth year and then scaling it… I feel like we were very lucky with PayPal in some ways, and for now, I want to focus on venture capital.”
He recently founded “The Thiel Fellowship: 20 under 20,” which will support 20 entrepreneurs under 20 years old with grants of up to $100,000. (Click here to learn more.) This fellowship is key to his goal of helping to develop the next generation of entrepreneurs and prevent what he feels is a fast-approaching technology stalemate with major economic repercussions.
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