I started this series of notes by sharing 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 second question - The Timing Question.
The Timing Question: Is now the right time to start your particular business?
The temporal context of innovation is important and it is important to understand sometimes the right innovations fail because the time was not right. For instance, imagine how Blu-ray disks were a superior technology but never saw the light of the day because advanced innovations had already taken over by the time blu-ray disks were finding applications in distributing high definition video content. Many believe innovation is hence a game of luck. Thiel differs on this bleak opinion. Thiel believes if you do not plan for innovation in the broader context of time, you will face “bad luck” in your business and fail. However, he gives some tools to develop a broader perspective on innovation in a temporal context.
Controlling the future conundrum
With so many failed innovations, most people believe in the high amount of intractable randomness in the success of a startup. Imagine how many startups perished just because no one knew that a pandemic will paralyze the world through 2020 and 2021. However, Thiel differs. Thiel feels while randomness and black swan events are natural in the chaotic world, there are still four major ideologies that define people in this aspect.
- Indefinite Pessimism: Indefinite Pessimists believe that time will only make things difficult and worse no matter what you do about them. Indefinite pessimists essentially believe their actions and planning have very little control over the impending doom. Thiel believes that since the current generation of Europe is witnessing a decline of global power in their hands as compared to their ancestors, it is in a state of indefinite pessimism.
- Definite Pessimism: Definite Pessimists believe that by planning to do whatever has proven to work they can save themselves from doom but trying new things are more likely to be failures. Hence, definite pessimists believe in copying things that have been proven to work (horizontal development). Thiel believes present-day China is in a state of definite pessimism and they copy whatever works from the US.
- Definite Optimism: Definite Optimists believe that the future will be better if they plan for it and work towards it. Thiel believes this ideology to be the best environment for creating startups that will change the world. In a world of definite optimism, investments are high and customer spending is also high since people believe in a better future and hence spend comfortably rather than just saving. Thiel believes that the US was in a state of definite optimism in the 1950s and 1960s.
- Indefinite Optimism: Indefinite Optimism is the state of the US currently. Indefinite Optimists feel that irrespective of what is done or not done, the future will certainly be better in one way or the other. Hence, people are not motivated to plan for the future and investments fall short because no one knows what to do next for a better future. Thiel believes that the US currently is in a state of Indefinite Optimism which can essentially not survive and people need to fall back to the state of definite optimism.
I found the four types of ideologies particularly interesting and I tried to analyze which people around me fall into which category. Essentially, I realized that to maintain a balance of being a definite optimist, I need to surround myself with the right proportion of two types of people. Firstly, the dreamers (Indefinite Optimists) believe that great innovations can happen even if it is not entirely clear “how” currently. Secondly, the realists (Definite Pessimists) know that every journey has obstacles, and often things do not work out the way we expect them to. I feel I tend towards being a dreamer more than a realist and hence if I have to choose a team around me, I feel it should be a mix of 60% realists and 40% dreamers.
Last Mover Advantage
While First Mover Advantage has been talked about a lot, Thiel points out that it is not the first-mover advantage, but the Last Mover Advantage that matters. In the words of Paras Chopra, don’t be the first mover in a market, be the first one to get it right. Essentially, when a business opens up a new market by being a first mover, even the customers are not sure that the product can solve a need of their own. When a market opens up, no one knows the exact needs of the people pertaining to that job, and more often than not first movers do not enjoy an unhindered monopoly for a long time. Sooner or later, people’s needs start to become clearer due to the efforts of the first mover and someone comes along who hits the hammer precisely on the nail and then captures the market with the right product for years to come. Hence, Thiel and Paras both clearly state that it is better to be the Last Mover rather than the First Mover. To grasp the concept, think about Orkut and Facebook, Yahoo and Google, or BlackBerry and iPhone [taken from Paras’s blog].