In a previous note, I shared the seven questions that all startups must answer. In this note, I am jotting down the mental models I have found in the book that corresponds to the first question - The Engineering Question.
The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
This note will help you develop a perspective on the engineering question and consider the learnings of Thiel in thinking about your own startup.
The Technology-Globalisation Model
Thiel clearly segregates two orthogonal axes of technological developments that a new startup can rely on. The first axis (vertical) is the development of new technologies that were not there earlier. For instance, a self-driving car is a truly new innovation that was not there in the world. The second axis of development is copying things that have been done in the past before but there is a segment of the market that is not able to get the particular innovation. For instance, PayTM did in India what Paypal had done in the US. PayTM did innovation of digital currency in the Indian context. Thiel says that any innovation is a combination of the two types of innovation and hence lies somewhere on the plane described below.
The two figures show the same plane but the interpretation of the two-axis is different. It must be noted that the vertical axis of development corresponds to technological innovation (going from 0 to 1) and the horizontal axis corresponds to globalization (going from 1 to n).
Less than 10x improvements get lost
Academia thrives on incremental innovations such as reducing the time complexity of an algorithm by a small amount is a publishable achievement. However, businesses do not have that luxury since they innovate to create value and earn money. Incremental Innovations do not work due to two reasons. Firstly, customers do not switch from their existing solutions for incremental innovation. Secondly, the impact of incremental innovations gets lost in the logistic business stack of marketing, sales and distribution channels between the product and the customer.
Man and Machine Association
Thiel also answers the age-old question of whether machines will one day replace humans in doing work and creating value. Thiel makes it clear that while machines have the intense capabilities to scale up the amount of work done in amount and efficiency, even the smartest of machines are much less intelligent than human toddlers. Hence, he believes that machines were never meant to replace humans but they were meant to assist humans in the work they do so that humans can exponentially scale up their work. Such associations between humans and machines will be the future of successful innovations, Thiel believes.
I hope the three concepts I told you were helpful for you to understand the engineering aspect of startups. In a subsequent note in this series, I will share with you the models and concepts Thiel mentions that belong to the Timing Question.