Wednesday, September 17, 2014

Peter Thiel's Challenge

I just happened upon a 90 minute video interview of capitalist Peter Thiel -- as in PayPal, Facebook -- conducted by an obseqious Bill Kristol.

I can well understand Kristol's hesitating politeness.  Thiel is an impressive man, who obviously thinks about and knows his stuff. For instance, he writes in praise of monopoly against free competition: "Competition is for Losers." He means, of course, that you want to start a business where it will be difficult for people to copy you and catch up with you. As in PayPal and Facebook. You'll never make much money in a commodity business where a ton of steel is a ton of steel.

Mind you, Thiel talks in a veiled way.  He says that PayPal solved its problems with fraud with a combination of big data and the human factor.  What does that mean?

And what about the new Apple Pay and all the other payments solutions for mobile devices? Are they coming up with something new or merely playing catch-up?

But here is the takeaway for me on Thiel. He says that one question he likes to ask when interviewing job applicants is this:
Tell me something that other people don't believe in. And that's true.
That notion aligns with Thiel's preference for financing opportunities that will yield monopoly profits. It means in many cases doing something that other people think is impossible. For instance, you'd think that the banks and credit card folks would have got into the payments-by-email business before PayPal. After all, money transaction is what they do. But in fact, according to Thiel, they didn't, and the reason they didn't is that they thought that payments by email would be too hard, because of the fraud.

Kristol asked Thiel about his Question? How do people answer it? Usually they don't.  They fake it. And Thiel then went into a discussion of the social nature of opinion.  People just don't tend to stray too far from the herd.

Thiel got me to thinking.  What would I say in response to his question? Here's my first attempt.

Most people don't believe that the free market is just and fair. They think it needs to be hedged around by regulation and government ukase. They think, perhaps not as passionately as the Occupy protesters, that we need a government with a gun to the head of employers. In fact business runs on trust, and the way to succeed in the market place is to make sure that all your transactions reward and amplify trust.

That's not to say that there isn't cheating and fraud in the world. But the way to succeed is to use TIT-FOR-TAT. Trust first, and then continue to trust if the other person is trustworthy. And avoid a "last transaction" because that's when it pays to cheat.

Here's another. Most people think of government as a powerful patron. You want to stay in good with your patron and collect the crumbs that fall from the master's table. But in reality government always betrays you. That's because government is force. It uses everyone that supports it as an army uses its soldiers, as cannon fodder in its campaign of force, in its endless wars, foreign and domestic.

Thiel's point is that you'll never amount to anything unless you've done a bit of contrarian thinking. Because if the herd is ever to change direction then someone has to swerve away from the herd and start off in a different direction.

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