Note: This is a copy from a wayback machine because https://allenleein.github.io doesnât work anymore, I just saved this content here for a better coverage
Most venture capitalists arenât original thinkers, but not Peter Thiel and Marc Andreessen. The two prestigious venture capitalists had a great debate[1] on business creation I think itâs worth to dig in.
Their disagreement can be viewed through the lens of how they view Twitter. Thiel sees it as âwe wanted flying cars, instead we got 140 charactersâ (a Founders Fund slogan). He thinks itâs an unimpressive, incremental advancement. Andreessen, however, views it as âinstant global public messaging for freeâ. In other words, fundamentally transformative.
Finding vs. Creating
Here are the differences in investing perspectives between Andreessen and Thiel.
Marc Andreessen: The Game of Finding
There are lots of rooms in this building(market), and there are lots of treatures(opportunities) in those rooms. You may know how many golds in some rooms, but you wonât know when will it open. You need good tools and good timing to open the doors to get those rewards.
Peter Thiel: The Game of Creating
You create another building, another layer of the game. You create new rooms others hard to even find it. Mostly, Itâs an âunpopular ideaâ so no one but you want to build it.
Marc Andreessen: Open at the Right Time
On Marcâs philosophy that software is eating the world, and timing is everything. In this game, he thinks the timing is everything. You need to execute your idea within the critical window to succeed. Most importantly, you need to find the right window.
âThe strongest form is that, as a consequence of all this, Silicon Valley-type software companies will end up eating everything. The kinds of companies we build in the Valley will rule pretty much every industry. These companies have software at their very core. They know how to develop software. They know the economics of software. They make engineering the priority. And thatâs why theyâll win. All this is reflected in the Andreessen Horowitz investment thesis. We donât do cleantech or biotech. We do things that are based on software. If software is the heart of the companyâif things would collapse if you ripped out your key development teamâperfect. The companies that will end up dominating most industries are the ones with the same set of management practices and characteristics that you see at Facebook or Google. It will be a rolling process, of course, and the backlash will be intense. Dinosaurs are not in favor or being replaced by birds.â- Marc Andreessen
âThe big, almost philosophical difference goes back to the timing issue. For entrepreneurs, timing is a huge risk. You have to innovate at the right time. You canât be too early. This is really dangerous because you essentially make a one-time bet. Itâs rare are to start the same company five years later if you try it once and were wrong on timing. Jonathan Abrams did Friendster but not Facebook. Things are different with venture capital. To stay in business for 20 years or more, you have to take a portfolio approach. Ideas are no longer one-time bets. If we believe in an idea and back the company that fails at it, itâs probably still a good idea. If someone good wants to do the same thing four years later, thatâs probably a good investment. Most VCs wonât do this. Theyâll be too scarred from the initial failure. But tracking systematically failures is important.â - Marc Andreessen
But seriouslyâif you think you can execute on an idea that someone tried 5-10 years ago and failed, good VCs will be open to it. You just have to be able to show that now is the time.- Marc Andreessen*
Peter Thiel: Create Your Own Door
Is your market big enough? Who caresâcreate a new one if it isnât. Peter Thiel argues good innovation sells itself.
âIf your product requires advertising or salespeople to sell it, itâs not good enough.ââTechnology is primarily about product development, not distribution.â - Peter Thiel, Zero to One
The Founderâs Fund, which Peter Thiel co-founded, has a longer manifesto here that explains in greater detail their investment philosophy on startups.
Peter believes indeterminate optimism: the future is made by exceptional people who have a definite plan and execute on it. That meaningful, big-leap innovations are often not obvious from the start: If youâre creating something that will be a great company 10 years from now, most people will probably not get it at first.
In other words: Founders who want to create radical innovation should have a big, audacious plan and ignore mundane thinking.
Peterâs logic works well in a long-term view: finding a frontier of value which will be great company years from now. A frontier that only a few people believe exists (but you have strong proof and conviction that it does).
Run Faster vs. Jump Higher
Higher: Investing for Control
You can term Peterâs approach to entrepreneurial strategy: investing for control.
You achieve it by patiently building your business at the same time as ensuring that you will be insulated from future competition. It takes time and it takes investment dollars as resources. Put out some crappy minimum viable product and you lose some options to control because you have shown your hand to others. Instead, what you want to do is put out a complete product with a strategy to acquire the complementary resources to insulate it from future competition.
There is, however, another sort of monopoly â a path that gets you 100 percent of a real market. This is done by having the capabilities to beat all rivals on either quality or cost. To see how this arises consider a very structurally price-competitive market (in economics, Bertrand competition). Now suppose that you develop an innovation that allows having lower marginal costs than everyone else. In this situation, you will be able to capture 100 percent of the market and so you will be a technical monopoly.
Faster: Focusing on finding the timing
You can term Marcâs approach to entrepreneurial strategy: focusing on execution(finding the timing).
It is not so obvious that one path to monopoly is more profitable than the other. If you focus on execution you can get to market quicker and with fewer resources. You can learn as you go and actually invest in the capabilities that will give you a competitive advantage in the future. In other words, while it takes on-going work â no resting on your monopoly laurels here â you can still âownâ a market. The difference is that your pricing is constrained by potential competition from other firms.
Finding the timing is the most important part of the execution. You need to execute your idea fast and good enough within the critical window to succeed. Most importantly, you may need to survive long enough to find the right window.
Which Game?
So both Marc Andreessen and Peter Thiel can have different preferences regarding control versus execution and still both be right as an investor.
As an entrepreneur, you can choose between investing in control or focusing on execution. Which is the right path is base on what kind of business/mindset you want to build. But, the worst founders switch between strategies then call it âpivotâ. The misunderstood dogma here is to have no definite plan, work in incremental iterations to find out whatâs most valuable to customers today(Lean Startup Methodology). This approach will probably lead you to very incremental solutions or even make you run around in circles achieving nothing. It lowers the cost of failure, but also the potential impact of success. The process becomes more important than the end goal.
The real question: Run faster or jump higher?
Source:Â 1