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Lecture 5, How to Start a Startup: Peter Thiel

startupclass.samaltman.com

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Re: Lecture 5, How to Start a Startup: Peter Thiel

#71

Post by ThomPete »

geoffbrown2014 wrote: post #67

One minor point of clarification on airline profitability. It wasn't competition that bankrupt them it was government regulation. Airlines were heavily regulated for many years and their ticket prices were set by regulators. Huge incentives were created for executives to not invest in fuel efficient new planes and capital equipment. When labor union contracts exploded with benefits and deregulation came, the legacy a…

I am always reminded of Branson being asked about how to become a millionaire to which he replied "You start as a billionaire and then buy an airline"

I think Theils point was that even those airlines that do survive makes no profit.

Re: Lecture 5, How to Start a Startup: Peter Thiel

#73

Post by tim333 »

geoffbrown2014 wrote: post #67

One minor point of clarification on airline profitability. It wasn't competition that bankrupt them it was government regulation. Airlines were heavily regulated for many years and their ticket prices were set by regulators. Huge incentives were created for executives to not invest in fuel efficient new planes and capital equipment. When labor union contracts exploded with benefits and deregulation came, the legacy a…

>several airlines have remained profitable

Thiel's point is that the industry as a whole in not especially profitable if at all. This has been true in most countries where there is free competition. In a competitive market you would expect the best companies to to make money and the least good to lose it or go bust.

Here's some Buffett quoteing on the matter:

>Back in ’95 in an interview with UNC TV, Buffett pointed out that the airline business in the U.S. “has made no money.”

>Thanks to Wilbur and Orville Wright and their adventures on the Outer Banks, North Carolina is known as “first in flight.” But Buffett didn’t let that history stop him from making a sarcastic remark about investors’ attitude toward the Wrights.

>“If there had been a capitalist down there, the guy would have shot down Wilbur,” Buffett said. “One small step for mankind, and one huge step for capitalism.”

He was joking or course. Interestingly Buffett has returned to aviation but with a business that is what Thiel would call a monopoly - Netjets. They have the vast majority of the fractional private jet rental business.

Re: Lecture 5, How to Start a Startup: Peter Thiel

#74

Post by csallen »

staunch wrote: post #7
csallen wrote: post #6

Earlier quoted context omitted.

>> "It probably even hurts more than it helps in the long term." Compared to what? Big companies and monopolies die eventually, yes, but they pretty much outlast smaller companies and startups by definition. Being big gives you the power of scale. You can simply afford to spend more resources building moats around your business than your smaller competitors can. If someone built a better Google.com today, I'd still b…

Compared to not having a monopoly. Google has built up a massive empire using their monopoly profits to subsidize every new business they've built. They lose money to give away products and services that users wouldn't pay for. It's a house of cards resting on a single point of failure. It wouldn't survive laying off most of its staff, which it would have to if it lost its search revenue. Companies that have always h…

Having one primary source of revenue vs having more than one is not the same thing as having a monopoly vs not having one. A monopoly is about the number of serious competitors you have, not the number of revenue steams you support or innovations you create.

To wit: there are companies with only one product without monopolies (e.g. pretty much every startup ever), and companies that constantly invent new products and do have monopolies (e.g. pharmaceutical companies).

Re: Lecture 5, How to Start a Startup: Peter Thiel

#75

Post by applecore »

001sky wrote: post #21
applecore wrote: post #12

Earlier quoted context omitted.

Instagram was worth $1 billon to Facebook in April 2012. WhatsApp is worth $22 billion in cash and stock to Facebook in October 2014. A lot can change in two and a half years, including relative valuations.

The point is that they are worth x if not buying them out would lower FB stock by X. Thats a wholly distinct notion than the company (per-se) being worth X. People are overly fascinated by valuations tied to $$$ signs, and under-appreciate the negative (exclusionary) value of property. There is a huge value in keeping (inexpensive) assets out of the hands of those who could usurp your power.

It's clear in hindsight that Facebook was (rightly) focused on the enormous upside optionality of the Instagram acquisition.

It wasn't about paying $1 billion for downside protection.

The same is true for the WhatsApp acquisition.

Re: Lecture 5, How to Start a Startup: Peter Thiel

#76

Post by [deleted] »

csallen wrote: post #74
staunch wrote: post #7

Earlier quoted context omitted.

Compared to not having a monopoly. Google has built up a massive empire using their monopoly profits to subsidize every new business they've built. They lose money to give away products and services that users wouldn't pay for. It's a house of cards resting on a single point of failure. It wouldn't survive laying off most of its staff, which it would have to if it lost its search revenue. Companies that have always h…

Having one primary source of revenue vs having more than one is not the same thing as having a monopoly vs not having one. A monopoly is about the number of serious competitors you have, not the number of revenue steams you support or innovations you create. To wit: there are companies with only one product without monopolies (e.g. pretty much every startup ever), and companies that constantly invent new products and…

[deleted]

Re: Lecture 5, How to Start a Startup: Peter Thiel

#77

Post by staunch »

csallen wrote: post #74
staunch wrote: post #7

Earlier quoted context omitted.

Compared to not having a monopoly. Google has built up a massive empire using their monopoly profits to subsidize every new business they've built. They lose money to give away products and services that users wouldn't pay for. It's a house of cards resting on a single point of failure. It wouldn't survive laying off most of its staff, which it would have to if it lost its search revenue. Companies that have always h…

Having one primary source of revenue vs having more than one is not the same thing as having a monopoly vs not having one. A monopoly is about the number of serious competitors you have, not the number of revenue steams you support or innovations you create. To wit: there are companies with only one product without monopolies (e.g. pretty much every startup ever), and companies that constantly invent new products and…

Of course it doesn't mean having one source of income. But in practice it looks that way. Certainly that's been the problem at Google, Microsoft, IBM, Oracle, etc. These companies came to rely on market domination instead of technology innovation, because their monopoly positions allowed them to.

Re: Lecture 5, How to Start a Startup: Peter Thiel

#78

Post by geoffbrown2014 »

tim333 wrote: post #73
geoffbrown2014 wrote: post #67

One minor point of clarification on airline profitability. It wasn't competition that bankrupt them it was government regulation. Airlines were heavily regulated for many years and their ticket prices were set by regulators. Huge incentives were created for executives to not invest in fuel efficient new planes and capital equipment. When labor union contracts exploded with benefits and deregulation came, the legacy a…

>several airlines have remained profitable Thiel's point is that the industry as a whole in not especially profitable if at all. This has been true in most countries where there is free competition. In a competitive market you would expect the best companies to to make money and the least good to lose it or go bust. Here's some Buffett quoteing on the matter: >Back in ’95 in an interview with UNC TV, Buffett pointed…

For airlines it must have been hard to capture much of the x value they created when someone else was in control of their y. ;)

I think computer hardware (especially memory or hard drives) would be a better historical industry to point to for incredible value created and precious little retained due to a hyper competitive market.

Re: Lecture 5, How to Start a Startup: Peter Thiel

#79

Post by geoffbrown2014 »

ThomPete wrote: post #71
geoffbrown2014 wrote: post #67

One minor point of clarification on airline profitability. It wasn't competition that bankrupt them it was government regulation. Airlines were heavily regulated for many years and their ticket prices were set by regulators. Huge incentives were created for executives to not invest in fuel efficient new planes and capital equipment. When labor union contracts exploded with benefits and deregulation came, the legacy a…

I am always reminded of Branson being asked about how to become a millionaire to which he replied "You start as a billionaire and then buy an airline" I think Theils point was that even those airlines that do survive makes no profit.

This reminds me of the old farmer saw. A farmer was asked what he would do with a millions dollars. His answer: Keep farming until it was gone. :)

Re: Lecture 5, How to Start a Startup: Peter Thiel

#80

Post by zan2434 »

fillskills wrote: post #37

Very eye opening. Personally this was the best of the series so far for me. Helped solve a lot of questions in my mind about why certain companies succeed (Instagram, Snapchat, Facebook, Tesla etc). Serve your niche well - is a often repeated quote, Peter just brought the idea to a higher level by answering the Why. One thing he might be missing on is the idea of lean startups. Its my opinion that Lean Startups does…

Interesting, but what were the niches for those companies you mentioned? Instagram, Snapchat, Tesla - namely
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