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I'm Adam Grant we're here with Peter
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teal co-founder and CEO of PayPal the
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first outside investor in Facebook as
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well as a legendary investor and
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entrepreneur in Silicon Valley he's the
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author of 0o to1 an extraordinary new
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book and we're thrilled to find out for
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starters Peter why is competition for
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losers well this was the headline of the
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Wall Street Journal excerpt of our book
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The the chapter title in the book itself
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said uh all happy companies are
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different so it was a slightly milder
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form of that but uh but it was this
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provocative idea because we always think
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competition is for winners and a winner
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is someone who's better at competing is
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more intense at competing uh that you
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know it's like you're in a high school
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sports team and you learn to compete
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against the people um you're up against
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and the Really talented people are the
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ones who compete the best um but what
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happens when you compete is you always
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just are focusing on the people around
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you on what people are already doing
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what's deemed valuable by other people
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and you often lose sight of building
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things that are one of a Kind different
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truly valuable and zero to1 companies
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are companies that have not been built
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before you know the next Bill Gates will
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not start an operating system the next
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Larry Page won't start a search engine
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the next Mark Zuckerberg won't start a
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um a uh a social networking company if
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you're copying these people you're not
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learning from them if you're competing
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against these people if you think you're
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competing with these people you're
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actually trying to copy them and again
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you're not learning from them wow so on
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the flip side of that then you argue we
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should actually think about monop is a
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good thing why well it it is certainly
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um from the point of view of a founder
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or entrepreneur you want your company to
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always be a monopoly you want to be um
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offering something to the world that no
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one else is offering and that therefore
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you'll have some really healthy profit
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margins around around your business so
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from the inside I would argue Monopoly
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is always a good thing and that's what
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every entrepreneur should should attempt
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to uh to build uh from the point of view
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of society as a whole I think monopolies
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deserve their bad reputation uh when
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things are static so if it's like the
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Parker Brothers board game where you're
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just reshuffling the Deeds or if it's
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like the post office or something like
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that where the Monopoly is just a rent
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collector or a toll collector that's bad
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but when it's something Dynamic like
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Apple computer building the first
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smartphone that work you have people
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lining up around the block to buy it
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that's a monopoly that does not create
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artificial scarcity but that's creating
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something new and that's doing something
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that's good for society as well so if
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you put these ideas together um is the
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suggestion then that that Mark Zucker
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shouldn't have started Facebook given
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that Friendster and Myspace were already
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out there that Larry and Sergey had alav
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Vista and S geves and others to compete
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with so Google shouldn't have existed
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well it's always um it certainly is
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always a question what um you know what
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dimension is is really new and and
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really different I would argue that with
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uh with Google and the search business
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uh it was the um page rank algorithm it
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was a way to automate search and
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computerize it that was quite new and
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that fundamentally transformed search
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into this uh vastly bigger
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um space than anyone had thought it was
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in the 90s in the preg Google 9s um and
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in a similar way I would say Facebook
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was the first one to really crack the
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code on making personal identity real
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you one of my friends Reed Hoffman went
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on to start LinkedIn in the '90s it
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started a company called social net so
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they already had social and networking
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in the name and their model was that uh
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you know we'd have these avatars on the
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internet and maybe I'd be a dog and
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you'd be a cat and then we have these
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questions how would we get along with
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each other and so there were all these
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virtual world simulated reality social
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networking plays but they were
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fundamentally about people being
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different from who they really were
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Facebook was the first one to really
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capture real identity so so sometimes
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companies are iterations on things where
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there's just a fundamental breakthrough
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in one really key
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Dimension so tell me a little bit about
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why you think software has been so
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lucrative and and why have we seen so
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much progress in digital technology
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recently well there's sort of a lot of
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reasons for this but this certainly has
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been the the last 40 50 years uh we've
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had enormous innovation in the world of
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bits somewhat Less in the world of atoms
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clean tech energy more generally uh
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Transportation biomed a lot of these
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other areas seem to have been a lot
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tougher um one of the things that I
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think is true of uh of any great company
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is you have to uh build something that
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is valuable to the world and you have to
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capture some fraction of what you create
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so you have to create X doll in value
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and you have to get y% of X and uh and X
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and Y are these totally independent
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variables in most cases Y is about 0%
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and this is a actually disturbing
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element in the history of innovation
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that a lot of innovators discovered
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things but weren't able to get anything
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you know Tesla was outc competed by
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Edison even though Edison had a inferior
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technology or uh the Wright brothers
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came up with a first airplane but they
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didn't get to be rich and of course in
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The Sciences it tends to be even worse
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if you're Einstein you come up with
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General general relativity you don't get
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to be a billionaire you don't even get
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to be a millionaire um and so there is
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something um there it's it's so it's
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always this question of how do you
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actually capture some of the value of
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what you create I think there is
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something very unusual about software
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businesses where so many of them um have
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this Monopoly like character that
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enables people to capture a tremendous
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amount of value and and I think that's
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that's sort of this very underexplored
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dimension of it you know the marginal
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cost producing software zero so you have
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these incredible economies of scale and
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that's sort of a classic uh Monopoly
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natural monopoly business it's really
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interesting it makes me wonder what's
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going to come next so if you think 20 30
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50 years down the road is there going to
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be a next digital Revolution and where
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will that be well I think it's a safe
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it's a fairly safe bet that the digital
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Revolution just keeps going you know
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it's been it's been going for 40 50
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years it's the contexts have gradually
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shifted from you know uh Hardware
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semiconduct conductors to software
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internet mobile internet and and so I
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think but I think in the space broadly
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is is a very good place to look and and
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and while we've constantly explored
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looking at you know all sorts of other
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technological verticals uh space biotech
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genomics um energy uh the bulk of our
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focus is still on software for this
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reason so let's talk about the people
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behind the software one of my favorite
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lines in 0o to one was that you didn't
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really trust a tech CEO wearing a suit
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well it's uh it was in the context of a
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lot of the clean tech companies in the
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'90s where you had these sort of uh
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people who they had a certain look to
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them where they and they sort of looked
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and and again it's always fact specific
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there're no hard and fast sartorial
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rules but in Silicon Valley if you were
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wearing a suit it looked like in a pitch
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meeting it looked like you were uh bad
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at sales and worse at Tech uh and so it
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had sort of that uh very specific
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meaning really interesting so you
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wouldn't make the broader statement that
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we should just leave Suits out of
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business Al together it depends totally
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on the context so these things are
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always always very context specific uh
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there are you know I think there
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definitely definitely one of the people
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rules that I find to be uh very true is
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that uh these companies often work well
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if the people have known each other for
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a long time or there's some some good
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prehistory so when I whenever I um talk
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to people who founded a company I often
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like to ask the prehistory question when
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did you meet how long have you been
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working before you started the company a
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bad answer is we met at a networking
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event a week ago and because and we
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started a company because we both want
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to be entrepreneurs um and a good answer
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is we were you know in college together
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for four or five years working on this
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thinking about this and you know I'm
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more on the business side and the other
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other person's more on the tech side or
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something like that and this was one of
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the the secrets behind the the PayPal
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Mafia that you were part of uh did you
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know back then that it was so critical
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to start a company with people that you
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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
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super well but it certainly helps
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because you know what people's strengths
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are you know what people's weaknesses
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are you can be somewhat more honest in
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conversations you have with people and
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then it does it does lead uh you know
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you have all these crazy ups and downs
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in these businesses and you you don't
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want things to blow apart on one of the
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lows so you also make a statement that
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uh that you are not a lottery ticket
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what is that about well there's always
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this very important question in business
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you know what is the role of chance um
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and how much is everything just a matter
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of uh luck one way or the other uh and
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it's a very hard question to answer
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because we can never run this experiment
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uh twice but I I think it's always a
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good sense to have to to sort of to tack
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a little bit against this this chance
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idea and this luck idea uh certainly as
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a venture capitalist when I've invested
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in businesses uh if I treat them as
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lottery tickets where okay I don't know
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if this is going to work maybe it works
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maybe it won't I'll give them some money
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um you know once you do that a bunch of
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times you've already psyched yourself
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into losing money and and and I found
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that I do much better when I have really
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high conviction and willing to put put a
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lot of capital behind an idea uh whereas
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when I'm saying that it's a lottery
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ticket what I'm off what often is really
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going on is that I'm actually too lazy
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to really think about what some of the
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strengths and weaknesses of of a given
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business are and so so even though there
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is such a thing as luck and it's it's
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it's quite important in some ways I
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think we exaggerate its importance and
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often um when we use the word luck uh we
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should instead just be thinking a little
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bit harder and if you think that you've
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been lazy the rest of us have a lot to
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worry about by comparison but if you um
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if you think about this this idea of
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luck um in in the book you actually say
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in a way you are playing a lottery
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ticket because on average the most
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successful investment in a fund will
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outperform the rest of the funds and so
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how do you reconcile that with the
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lottery idea well that's that's not so
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much a lottery ticket as it is that you
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do have the these very extreme outcomes
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where some of these companies end up
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being vastly more successful than others
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and there's sort of this very unequal
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distribution not all companies are
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created equal and they're sort of more
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unequal than our intuitions about this
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this often are so I think of the the
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lottery ticket part is just is the
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company going to do well will it work or
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will it fail so I think you know there's
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some companies that do reasonably well
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some do a lot better than others so I I
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as long as they all succeed that's
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that's fine as an investor but I think
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it's also important to keep in mind that
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some do a lot better than others and
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this this changes one's thinking in a
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lot of ways so for example uh you might
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have um you would have been better off
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as the hundredth person at Google than
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the CEO founder of most venture-backed
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startups in Silicon Valley uh and and so
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so it's possible because these outcomes
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are so wildly uneven that we slightly
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overvalue people starting companies and
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we undervalue asking is there a really
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valuable company you should try to join
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join instead that's an interesting
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connection back to the Monopoly
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discussion because maybe one Mis
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interpretation of your Monopoly idea is
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that everybody should go and try to
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start a company that no one's building
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in reality you're recommending that a
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few of us do that and the rest maybe
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think about joining that company it's uh
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it's important well if you have a great
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idea uh you should go ahead and start it
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but you shouldn't you shouldn't start a
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company for for its own sake and
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certainly there's there's always a sense
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suspicion when that the fourth online
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pet food company the 10th thin film
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solar panel company are are not quite as
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original and groundbreaking as as people
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might advertise them to be so talk to us
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a little bit about how you think about
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when you want to actually be involved as
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a Founder versus an investor I'm
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thinking of paler as an example where um
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many people know it now as a killer app
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that's being used to fight terrorism
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there you co-founded in other cases
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you've invested and taking a little bit
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more of a backseat role when you decide
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to jump in full well I'm I'm mostly most
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work as an investor these days uh I
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think that uh I do think that um and
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palent I'm chairman which is sort of a a
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board level involvement but not uh not
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sort of a day-to-day showing up at the
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office every single day working some
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operational managerial capacity I think
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in most cases you're either sort of
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Allin or or not and it's it's not really
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possible to do these companies part-time
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and um and as an investor you always
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have to have a certain sense of humility
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that you know once you WR write that
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check you only have very limited control
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over over what you can do so you have to
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think really hard when you write those
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checks I would hope so anyway now when
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you think about your your investing
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career is there an investment that you
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regretted the most looking back and
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maybe learned the most from well sort of
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the the somewhat odd one that I always
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give as an answer to that is that the
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biggest mistake I made uh in the last
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decade or so was uh not doing the series
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B round at Facebook so I invested in
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summer of 04 the series a round uh then
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there was a a you know much higher
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valuation about 12 times the per share
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price eight months later which was the
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series B and I actually thought about it
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pretty hard but on paper my stake was
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already really
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big uh but it it was it would have
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really been a a good uh good investment
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to make you know the the uh there were
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more than 12 times as many users so on
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on sort of a per user basis it was
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perhaps actually lower than the first
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round and so there are all these
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intuitions we have um about these these
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companies that are quite tend to be
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quite off um things change can change
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very quickly they can change for the
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better in ways that are very dramatic
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and very underestimated and sometimes
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they also change for the worst maybe
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nothing has changed in a year and that
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itself is a change for the worst because
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you only have a certain amount of time
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during which you have to accomplish what
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you're going to accomplish it's like
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this option that sort of is running out
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of time let's take this back to the book
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then uh you were teaching a class at
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Stanford law school and there was a
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student Blake Masters who was taking
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notes which went massively viral at what
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point did you decide I want this to be a
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book and why yeah it was a it was a
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class actually undergraduate in the
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computer science department Blake was at
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the law school the time sat in on the
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class he he took the notes they went
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viral we had about 300 400,000 people
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read them on the Internet and and we
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concluded wow there's so much interest
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in this there's no reason we need to do
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this just in Stanford or just in Silicon
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Valley let's try to um distill all these
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thoughts into an even more crisp form uh
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and the best form we came up with was
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was to actually write a book and that's
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what we did the book is full of of some
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statements that are at best uh
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provocative but I think everyone in many
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cases would find them to be even a
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little bit contrarian how often do you
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believe everything you write versus
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you're pushing an argument to its an
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extreme but maybe questioning how far
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you'd go on it oh I I believe everything
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I say so I guess then as a follow-up
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question when you think about how to
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best get people to adopt opt some of
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your more radical ideas uh is there a
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point at which you don't want too many
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people to follow them so if we were to
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take for example the idea of of starting
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a monopoly we said not everybody should
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do it uh when you have people dropping
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out of college perhaps to uh to think
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about joining your fellowship um again
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it's for 20 people are you designing
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some of these ideas just for a subset as
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opposed to for the majority well I I I
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don't believe that there's a one-sized
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fits-all approach so I think on on um
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you know I don't think everyone should
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go to college I don't think everyone
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should drop out of college and start a
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company uh and uh and I think in terms
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of what we do with our lives with our
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careers uh there's there's no one right
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answer um I think my you my critique of
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our society and culture is that things
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have gotten way too tracked people get
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tracked from the time they're three or
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four years
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old testing Mania tracking Mania and um
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and it makes people somewhat better at
00:15:54
the things are being tested on but then
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I think it also has this uh un fortunate
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narrowing effect on on on our whole
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country that uh that's probably not not
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the best way to be I think that's
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actually a great segue to the last
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question I wanted to pose which is you
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were on one of those tracks you went to
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law school you were working in the
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financial world and you managed to get
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off how how did you decide to make the
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leap well I sort I sort of think of
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myself as having had a rolling
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quarterlife crisis in my 20s where where
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it was where uh there were all these in
00:16:23
my eth grade yearbook already one of my
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friends said I was going to go to
00:16:26
Stanford as a sophomore in four or five
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years years and that sort of happened
00:16:30
went to law school did the Wall Street
00:16:31
Law Firm Wall Street bank and uh and it
00:16:36
was it was a very strange Dynamic where
00:16:38
from the outside everyone wanted to get
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in on the inside everybody wanted to get
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out and uh and you were forced to I
00:16:45
really had to rethink what did I really
00:16:47
want to do what was I really passionate
00:16:49
about and then moved back to California
00:16:51
and uh in the in the tech boom in the
00:16:53
late '90s got involved in that and ended
00:16:55
up starting PayPal but uh but I think
00:16:57
you know if I had given advice to my
00:16:59
younger self um I might I might still go
00:17:02
to Stanford I might still go to law
00:17:03
school but I'd ask far more questions
00:17:06
why was I doing it was I doing it just
00:17:07
for status and Prestige or was I doing
00:17:09
it because I was really substantively
00:17:11
interested great thank you Peter thanks
00:17:13
for having me
00:17:18
[Music]
00:17:27
Adam
00:17:28
[Music]
