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I'm Adam Grant we're here with Peter teal co-founder and CEO of PayPal the
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first outside investor in Facebook as well as a legendary investor and entrepreneur in Silicon Valley he's the
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author of 0o to1 an extraordinary new book and we're thrilled to find out for
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starters Peter why is competition for losers well this was the headline of the Wall Street Journal excerpt of our book
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The the chapter title in the book itself said uh all happy companies are different so it was a slightly milder
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form of that but uh but it was this provocative idea because we always think competition is for winners and a winner
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is someone who's better at competing is more intense at competing uh that you
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know it's like you're in a high school sports team and you learn to compete
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against the people um you're up against and the Really talented people are the
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ones who compete the best um but what happens when you compete is you always just are focusing on the people around
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you on what people are already doing what's deemed valuable by other people and you often lose sight of building
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things that are one of a Kind different truly valuable and zero to1 companies are companies that have not been built
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before you know the next Bill Gates will not start an operating system the next Larry Page won't start a search engine
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the next Mark Zuckerberg won't start a um a uh a social networking company if
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you're copying these people you're not learning from them if you're competing
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against these people if you think you're competing with these people you're
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actually trying to copy them and again you're not learning from them wow so on
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the flip side of that then you argue we should actually think about monop is a good thing why well it it is certainly
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um from the point of view of a founder or entrepreneur you want your company to always be a monopoly you want to be um
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offering something to the world that no one else is offering and that therefore you'll have some really healthy profit
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margins around around your business so from the inside I would argue Monopoly is always a good thing and that's what
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every entrepreneur should should attempt to uh to build uh from the point of view
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of society as a whole I think monopolies deserve their bad reputation uh when things are static so if it's like the
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Parker Brothers board game where you're just reshuffling the Deeds or if it's
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like the post office or something like that where the Monopoly is just a rent collector or a toll collector that's bad
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but when it's something Dynamic like Apple computer building the first smartphone that work you have people
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lining up around the block to buy it that's a monopoly that does not create artificial scarcity but that's creating
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something new and that's doing something that's good for society as well so if
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you put these ideas together um is the suggestion then that that Mark Zucker shouldn't have started Facebook given
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that Friendster and Myspace were already out there that Larry and Sergey had alav
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Vista and S geves and others to compete with so Google shouldn't have existed
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well it's always um it certainly is always a question what um you know what dimension is is really new and and
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really different I would argue that with uh with Google and the search business uh it was the um page rank algorithm it
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was a way to automate search and computerize it that was quite new and that fundamentally transformed search
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into this uh vastly bigger um space than anyone had thought it was in the 90s in the preg Google 9s um and
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in a similar way I would say Facebook was the first one to really crack the code on making personal identity real
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you one of my friends Reed Hoffman went on to start LinkedIn in the '90s it started a company called social net so
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they already had social and networking in the name and their model was that uh you know we'd have these avatars on the
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internet and maybe I'd be a dog and you'd be a cat and then we have these
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questions how would we get along with each other and so there were all these virtual world simulated reality social
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networking plays but they were fundamentally about people being different from who they really were
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Facebook was the first one to really capture real identity so so sometimes companies are iterations on things where
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there's just a fundamental breakthrough in one really key Dimension so tell me a little bit about
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why you think software has been so lucrative and and why have we seen so much progress in digital technology
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recently well there's sort of a lot of reasons for this but this certainly has
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been the the last 40 50 years uh we've had enormous innovation in the world of
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bits somewhat Less in the world of atoms clean tech energy more generally uh Transportation biomed a lot of these
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other areas seem to have been a lot tougher um one of the things that I think is true of uh of any great company
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is you have to uh build something that is valuable to the world and you have to capture some fraction of what you create
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so you have to create X doll in value and you have to get y% of X and uh and X and Y are these totally independent
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variables in most cases Y is about 0% and this is a actually disturbing element in the history of innovation
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that a lot of innovators discovered things but weren't able to get anything you know Tesla was outc competed by
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Edison even though Edison had a inferior technology or uh the Wright brothers came up with a first airplane but they
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didn't get to be rich and of course in The Sciences it tends to be even worse
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if you're Einstein you come up with General general relativity you don't get
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to be a billionaire you don't even get to be a millionaire um and so there is
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something um there it's it's so it's always this question of how do you
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actually capture some of the value of what you create I think there is something very unusual about software
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businesses where so many of them um have this Monopoly like character that enables people to capture a tremendous
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amount of value and and I think that's that's sort of this very underexplored
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dimension of it you know the marginal cost producing software zero so you have these incredible economies of scale and
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that's sort of a classic uh Monopoly natural monopoly business it's really
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interesting it makes me wonder what's going to come next so if you think 20 30
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50 years down the road is there going to be a next digital Revolution and where will that be well I think it's a safe
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it's a fairly safe bet that the digital Revolution just keeps going you know
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it's been it's been going for 40 50 years it's the contexts have gradually
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shifted from you know uh Hardware semiconduct conductors to software internet mobile internet and and so I
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think but I think in the space broadly is is a very good place to look and and and while we've constantly explored
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looking at you know all sorts of other technological verticals uh space biotech genomics um energy uh the bulk of our
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focus is still on software for this reason so let's talk about the people behind the software one of my favorite
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lines in 0o to one was that you didn't really trust a tech CEO wearing a suit
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well it's uh it was in the context of a lot of the clean tech companies in the
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'90s where you had these sort of uh people who they had a certain look to them where they and they sort of looked
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and and again it's always fact specific there're no hard and fast sartorial
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rules but in Silicon Valley if you were wearing a suit it looked like in a pitch
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meeting it looked like you were uh bad at sales and worse at Tech uh and so it had sort of that uh very specific
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meaning really interesting so you wouldn't make the broader statement that we should just leave Suits out of
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business Al together it depends totally on the context so these things are always always very context specific uh
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there are you know I think there definitely definitely one of the people rules that I find to be uh very true is
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that uh these companies often work well if the people have known each other for a long time or there's some some good
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prehistory so when I whenever I um talk to people who founded a company I often like to ask the prehistory question when
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did you meet how long have you been working before you started the company a bad answer is we met at a networking
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event a week ago and because and we started a company because we both want to be entrepreneurs um and a good answer
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is we were you know in college together for four or five years working on this thinking about this and you know I'm
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more on the business side and the other other person's more on the tech side or
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something like that and this was one of the the secrets behind the the PayPal Mafia that you were part of uh did you
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know back then that it was so critical to start a company with people that you knew well and trusted well it's it's I I
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don't think you need to know all of them super well but it certainly helps because you know what people's strengths
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are you know what people's weaknesses are you can be somewhat more honest in
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conversations you have with people and then it does it does lead uh you know you have all these crazy ups and downs
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in these businesses and you you don't want things to blow apart on one of the
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lows so you also make a statement that uh that you are not a lottery ticket what is that about well there's always
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this very important question in business you know what is the role of chance um and how much is everything just a matter
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of uh luck one way or the other uh and it's a very hard question to answer because we can never run this experiment
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uh twice but I I think it's always a good sense to have to to sort of to tack
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a little bit against this this chance idea and this luck idea uh certainly as a venture capitalist when I've invested
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in businesses uh if I treat them as lottery tickets where okay I don't know if this is going to work maybe it works
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maybe it won't I'll give them some money um you know once you do that a bunch of
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times you've already psyched yourself into losing money and and and I found that I do much better when I have really
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high conviction and willing to put put a lot of capital behind an idea uh whereas
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when I'm saying that it's a lottery ticket what I'm off what often is really
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going on is that I'm actually too lazy to really think about what some of the
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strengths and weaknesses of of a given business are and so so even though there is such a thing as luck and it's it's
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it's quite important in some ways I think we exaggerate its importance and often um when we use the word luck uh we
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should instead just be thinking a little bit harder and if you think that you've
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been lazy the rest of us have a lot to worry about by comparison but if you um if you think about this this idea of
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luck um in in the book you actually say in a way you are playing a lottery ticket because on average the most
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successful investment in a fund will outperform the rest of the funds and so how do you reconcile that with the
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lottery idea well that's that's not so much a lottery ticket as it is that you
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do have the these very extreme outcomes where some of these companies end up being vastly more successful than others
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and there's sort of this very unequal distribution not all companies are created equal and they're sort of more
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unequal than our intuitions about this this often are so I think of the the lottery ticket part is just is the
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company going to do well will it work or will it fail so I think you know there's
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some companies that do reasonably well some do a lot better than others so I I as long as they all succeed that's
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that's fine as an investor but I think it's also important to keep in mind that
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some do a lot better than others and this this changes one's thinking in a lot of ways so for example uh you might
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have um you would have been better off as the hundredth person at Google than the CEO founder of most venture-backed
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startups in Silicon Valley uh and and so so it's possible because these outcomes
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are so wildly uneven that we slightly overvalue people starting companies and we undervalue asking is there a really
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valuable company you should try to join join instead that's an interesting connection back to the Monopoly
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discussion because maybe one Mis interpretation of your Monopoly idea is that everybody should go and try to
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start a company that no one's building in reality you're recommending that a
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few of us do that and the rest maybe think about joining that company it's uh
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it's important well if you have a great idea uh you should go ahead and start it
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but you shouldn't you shouldn't start a company for for its own sake and
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certainly there's there's always a sense suspicion when that the fourth online
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pet food company the 10th thin film solar panel company are are not quite as original and groundbreaking as as people
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might advertise them to be so talk to us a little bit about how you think about when you want to actually be involved as
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a Founder versus an investor I'm thinking of paler as an example where um many people know it now as a killer app
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that's being used to fight terrorism there you co-founded in other cases you've invested and taking a little bit
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more of a backseat role when you decide to jump in full well I'm I'm mostly most
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work as an investor these days uh I think that uh I do think that um and palent I'm chairman which is sort of a a
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board level involvement but not uh not sort of a day-to-day showing up at the office every single day working some
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operational managerial capacity I think in most cases you're either sort of Allin or or not and it's it's not really
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possible to do these companies part-time and um and as an investor you always have to have a certain sense of humility
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that you know once you WR write that check you only have very limited control over over what you can do so you have to
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think really hard when you write those checks I would hope so anyway now when you think about your your investing
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career is there an investment that you regretted the most looking back and maybe learned the most from well sort of
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the the somewhat odd one that I always give as an answer to that is that the biggest mistake I made uh in the last
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decade or so was uh not doing the series B round at Facebook so I invested in summer of 04 the series a round uh then
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there was a a you know much higher valuation about 12 times the per share price eight months later which was the
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series B and I actually thought about it pretty hard but on paper my stake was already really
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big uh but it it was it would have really been a a good uh good investment to make you know the the uh there were
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more than 12 times as many users so on on sort of a per user basis it was perhaps actually lower than the first
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round and so there are all these intuitions we have um about these these companies that are quite tend to be
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quite off um things change can change very quickly they can change for the better in ways that are very dramatic
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and very underestimated and sometimes they also change for the worst maybe nothing has changed in a year and that
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itself is a change for the worst because you only have a certain amount of time during which you have to accomplish what
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you're going to accomplish it's like this option that sort of is running out
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of time let's take this back to the book then uh you were teaching a class at
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Stanford law school and there was a student Blake Masters who was taking notes which went massively viral at what
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point did you decide I want this to be a book and why yeah it was a it was a class actually undergraduate in the
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computer science department Blake was at the law school the time sat in on the class he he took the notes they went
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viral we had about 300 400,000 people read them on the Internet and and we concluded wow there's so much interest
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in this there's no reason we need to do this just in Stanford or just in Silicon
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Valley let's try to um distill all these thoughts into an even more crisp form uh
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and the best form we came up with was was to actually write a book and that's
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what we did the book is full of of some statements that are at best uh provocative but I think everyone in many
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cases would find them to be even a little bit contrarian how often do you believe everything you write versus
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you're pushing an argument to its an extreme but maybe questioning how far you'd go on it oh I I believe everything
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I say so I guess then as a follow-up question when you think about how to best get people to adopt opt some of
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your more radical ideas uh is there a point at which you don't want too many
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people to follow them so if we were to take for example the idea of of starting a monopoly we said not everybody should
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do it uh when you have people dropping out of college perhaps to uh to think about joining your fellowship um again
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it's for 20 people are you designing some of these ideas just for a subset as
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opposed to for the majority well I I I don't believe that there's a one-sized
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fits-all approach so I think on on um you know I don't think everyone should
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go to college I don't think everyone should drop out of college and start a company uh and uh and I think in terms
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of what we do with our lives with our careers uh there's there's no one right
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answer um I think my you my critique of our society and culture is that things have gotten way too tracked people get
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tracked from the time they're three or four years old testing Mania tracking Mania and um
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and it makes people somewhat better at the things are being tested on but then I think it also has this uh un fortunate
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narrowing effect on on on our whole country that uh that's probably not not the best way to be I think that's
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actually a great segue to the last question I wanted to pose which is you were on one of those tracks you went to
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law school you were working in the financial world and you managed to get off how how did you decide to make the
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leap well I sort I sort of think of myself as having had a rolling quarterlife crisis in my 20s where where
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it was where uh there were all these in my eth grade yearbook already one of my friends said I was going to go to
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Stanford as a sophomore in four or five years years and that sort of happened went to law school did the Wall Street
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Law Firm Wall Street bank and uh and it was it was a very strange Dynamic where from the outside everyone wanted to get
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in on the inside everybody wanted to get out and uh and you were forced to I really had to rethink what did I really
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want to do what was I really passionate about and then moved back to California and uh in the in the tech boom in the
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late '90s got involved in that and ended up starting PayPal but uh but I think
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you know if I had given advice to my younger self um I might I might still go to Stanford I might still go to law
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school but I'd ask far more questions why was I doing it was I doing it just
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for status and Prestige or was I doing it because I was really substantively interested great thank you Peter thanks
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for having me [Music] Adam [Music]