Lessons from Peter Thiel

Lessons from Peter Thiel

Joe|April 11, 2010

These lessons summarize what Joe Lonsdale learned from working over many years with Peter Thiel, our chairman and one of our founders. These are very much worth reading for everyone at Palantir — they will change the way you think.

The nine lessons:

1. Divide reasoning into separate parts and clearly identify the most important factor.

If there’s no single reason that can cause you to do something, you should think carefully about whether it’s important or not. Oftentimes we’ll want to do something, and we’ll give multiple reasons for it without thinking hard about them. If you can’t give a single reason that justifies doing something on its own, you should be very wary that you aren’t exercising sufficient intellectual discipline.

2. Don’t divide your attention: focusing on one thing yields increasing returns for each unit of effort.

At a micro level, an extra hour of focus on the current project has a much higher return than an hour on something new, or worse, 5 minutes each on 12 new things. Before you ever do something new, you should understand the opportunity cost vs. existing things. Don’t rationalize that something you want to do is complementary when it’s not!

At a macro level, understanding that applied effort has a convex output curve is a very useful discipline when considering new market areas. This convexity means that the opportunity cost of transferring resources from existing projects to new ones is high. Unless the new area is incredibly valuable, anything we can do to extend an existing convex curve is worth so much more.

3. In hiring, value intelligence highly. Like focus, intelligence yields increasing returns.

Like focus, intelligence has a convex output curve — the smartest people can be an order of magnitude more productive than others who are only somewhat less smart. The key in hiring is to value potential skill rather than currently existing skill — and potential skill is based on intelligence rather than training.

4. Obsess over perfection.

If you are designing something that a customer is going to use or that will represent us in public, it’s not good enough unless it’s flawless and extraordinary.

Especially in software, many situations have winner-take-all dynamics due to network effects and switching costs. Being the winner means being in the 99.99-percentile. A winner at the top takes nearly everything, and only a pittance goes to the others — so being 99.99-percentile is worth an order of magnitude or two more than being just 98-percentile. If it’s 1am and you’ve already got something that is very good, this is why it’s worth spending the next couple of hours to make it amazing.

5. Use small details as indicators to point to the larger truth — and be alert when they point to conclusions you don’t like.

Despite the danger in this approach — indicators are not always right — more often than not you can derive a lot of wisdom from subtle indicators. How competent a single person is or how hard one person is working, or what a couple smart people think, might tell you a lot about a group before deciding whether to work with them. It’s an important discipline to be open to any indicators that you find whether they confirm your biases or not. In fact, you should be open to them especially when they do not confirm your biases.Indicators can be about all sorts of things, such as about the importance of a contract, the effectiveness of our software in different scenarios, the opinions and biases of key decision makers, etc. Few people pay as close or as honest attention to them as they should.

6. Don’t waste time talking about what you plan to think about; instead, work through it immediately.

Intellectual laziness can easily sneak up on you. If you are sitting there talking about problems you plan to solve later, there’s a good chance you are being inefficient. Similarly, in GTD, you don’t put off tasks that only take a couple minutes. In many cases, you can outline and solve or at least clarify any decision or problem you’re confronted with in just a few minutes.

7. Take the time to listen to smart people with whom you disagree.

This is not easy to do. Over time, any firm will find that certain methods and biases tend to work very well, and the more successful it is, the more it will develop its own unique mindset. We couldn’t succeed without the methods and principles that we learn over time, nor can we constantly re-articulate why they are the correct approach to everyone who comes along.

A sort of pride rightly develops around the successful structure, but this mindset cannot be allowed to ossify into an orthodoxy. So we have to use our judgment to seek out intelligent people who disagree with us — or even intelligent people who have simply taken a different approach — and be open about what we might learn from them. Despite his very strongly developed and out-of-the-mainstream views, Peter does this constantly, and it makes him extremely effective.

8. Be skeptical of any sort of external allies, and don’t trust the execution of anyone outside Palantir.

In the abstract, this is because the incentives of the other company will not line up with ours, and even if they do for the moment, they no longer will once the situation changes. In specific, other companies don’t have the same culture of execution that Palantir does, and we don’t have the power to instill that culture in them. Very early on, Peter saved Palantir from a partnership that would likely have destroyed the company.

In practice, that skepticism has led us to force others to pay upfront as one of the ways of proving value, which has worked well. Ultimately, only our own execution can make us win.

9. Return to first principles and act quickly on your new conclusions.

It’s very easy to take the world as it is, as opposed to envisioning it as you want it to be. For example, when re-designing a feature, one approach is to take what you have, and imagine small changes that will solve the problems with the feature. Instead, it’s often instructive to imagine that you were working from a clean slate and design the feature from scratch. In either case, the right approach is almost always to re-use the existing codebase in your implementation — but starting from first principles frees your mind from your assumptions about implementation complexity and forces you to re-consider the assumptions that stand in the way of the best solution.

Just like questioning our own assumptions, returning to first principles and building the argument up from scratch is a very powerful intellectual device that helps us to recreate our models as you receive new information, and to uncover options and opportunities you’d otherwise miss. It is not surprising to see that the largest hedge fund in the world, now one of our customers, also emphasized this as their key methodology.

Joe Lonsdale
General Partner, 8VC

Then the Gods Gave Me Pride

Then the Gods Gave Me Pride

Joe|December 10, 2009

By the time that Alexander the Great’s armies had conquered most of the known world, it had become much harder to get the men to fight — even for one of the most talented and inspiring leaders that has ever lived. Brought up in the world’s leading martial culture, and having just conquered the rest of Greece under King Philip of Macedon, Alexander’s father, the soldiers were trained in the coordinated use of the giant pike sarissas, better battle organization and physical preparation, and possessed the unbridled spirit of free men. Their talent and advantages allowed them to sweep out of Greece and to cut through the Persian Empire and then anybody else in their path — whether they were liberating or enslaving is a matter of debate, but they believed they were liberators, as did Livy 300 years later. Only men inspired by a higher cause could have achieved so much.

But they were weighed down by their enormous success — proud officers soon squabbled and began to kill each other, and maneuvered for position. Trouble in the ranks began to occupy more and more of Alexander’s time. Not only the officers but the soldiers had become kings in their own right — their unprecedented success had brought even the lowliest Greek soldier hairdressers, weapons handlers, concubines, and other luxuries, and all the wealth they would ever need. It’s no wonder that the army rebelled against Alexander as he attempted to cross further into India, and forced him to turn back. They had had enough success, and the success had turned on itself. They had become too important to risk their own lives, or to suffer the outrageous indignities of a fierce battle.

Alexander the Great’s case is an extreme one, but our own Alexander and his officers are about to face the myriad problems of the early stages of success, and self-awareness and heading these issues off before and as they arise will be critical to taking what is currently an impressive start and pushing it squarely into the realms of glory that we are capable of achieving.

The Greeks had a saying — that the gods did not like men to think they were more than men, so when men started to succeed, the gods would send them pride, which would cause them to fail and to remain mortal. This failure would not be the fault of the great man — at some point, men are supposedly unable to resist pride, and the gods are always able to smash them down.

Pride comes in many forms and is expressed in a lot of ways. One common form of pride is the conviction that the rest of the world is incompetent and that only your way of doing things works, or only your unique skills are truly relevant.

At a hedge fund, for instance, one can imagine a successful group of traders who see the world from their own perspective having profited greatly from this for several years. Pride would quickly lead them to believe that most other people are unenlightened and are operating in a context that is virtually worthless by comparison. In a more extreme scenario, they might come to believe that virtually every other form of trading or even of making money in finance is stupid or worthless by comparison; as the pride becomes more extreme, virtually everything else becomes worthless by comparison and they begin to stop challenging their assumptions.

In a technology group, the pride of success leads insiders to believe that virtually every other technology in the space is worthless by comparison. This attitude slowly discourages questioning and challenging the internal technological processes and methodologies, and above all discourages questioning the basic assumptions and the framework of the approach. Although the initial assumption of massive superiority may be true at a given point in time, the attitude tends to stick, and long after a large government organization or corporation is no longer the best, it will continue to believe it is, and it will ignore outside technology, eventually to its massive detriment.

In a sales organization, pride is at least as great a threat as anywhere else. The sale closer is the rainman, and nothing would function without him, and everything he did to make it work was a stroke of unique genius and subtlety, much of it beyond the appreciation of the unwashed masses. Success further confirms the bias that other methodologies are naive, and probably useless. Everything else becomes useless other than the mantras and processes that have worked to date. A great salesman is an extremely valuable person, and a great sales manager is even more important. But in reality, depending on a variety of factors, sales could often have worked through any number of channels and methods, and are only one part of the business. But it is rare for the gods to allow the successful salesman to maintain perspective in the dizzying face of success. The flexibility, optionality, and 20,000 foot viewpoints that are vital to stop and consult along the way in tandem with the successful and disciplined sales methods are often pushed to the wayside, and other parts of the organization can easily become undervalued.

Meanwhile, it is easy to too quickly dismiss outsiders with different sales tactics that have proven successful in their own right but do not conform with the currently successful practices of the existing organization. Partners or new channels are discounted. “That is worthless” because it didn’t come from me becomes the default response, if not verbally then intellectually. In the face of massive success, anything a salesman is doing must be genius, and success will instinctively reinforce his idea that everybody else is a waste of time and that his methods are the best. It’s easy to apply this to mean that you should ignore everybody and everything else — especially if the success is continuing as you start to do this. But only by constantly learning and constantly challenging its assumptions can a sales organization achieve its full potential, just like any other human endeavor.

In a company that has an SV startup culture, success brings other challenges, and the introduction of liquidity is very dangerous — just as the introduction of riches to Alexander’s troops distracted them, so did it distract Google employees who became famous for “calling in rich.” A company must have a strong, spartan culture (all necessities and comforts provided by the organization and a devotion to the collective), especially during periods of rapid growth, if it is to survive the perils of liquidity. Meanwhile, cultural values are created and reinforced by the leaders. Alexander the Great kept discipline as long as possible by shaping and living his own life around his mission and his quest for glory, and his men knew it wasn’t just an act, it was truly his passion. He also made an effort to continue to shower generosity on his troops, not as a celebration of luxury, but as a celebration of their achievements and their dedication, with personalized gifts that may have been valuable in their own right but whose chief value came as recognition of their mutual dedication and respect. It was clear that he cared about what everybody was working on and about winning, not about enjoying the riches of achievement.

The leaders of the company should be on the same page about what they’re focused on and how their lifestyles and even the leisure activities that people know about reflect their values to the rest of the company. This is something they can help each other with. Especially as higher-ranked officers first begin to enjoy their success, it is easy to unwittingly take actions that suggest that success is something to be distracted by, or that engage in cultures such as New York models and parties, actions that are a bad influence on the mimetic desires of the troops and their shared focus on the mission.

Success tells you that everything about you and what you are doing must be great, and makes you less tolerant of negative feedback, less eager to search and improve yourself. But success comes from a myriad of inputs and has many more fathers than most realize — to continue to succeed you cannot take success personally. We are becoming more successful at our company, and the gods are already working on us. Of course they are, as we are human. But we can be orders of magnitude more successful than we are now — we should be. It will be a horrible failure if we are not. But if we do not constantly question ourselves and constantly recreate ourselves, if we do not tolerate other opinions and methods, if we do not catch ourselves when we look at how great we are and think that we deserve more respect, then the gods will succeed in tearing us down.

Pride costs us more than anything else and it is endemic to all of humanity. And success breeds a host of situations and influences that are mean-reverting, individually and culturally. As we begin to face off against true success, we must remain manically self-aware of its extraordinary challenge if we hope to continue to climb towards the gods.