5 Tips from Peter Thiel on Starting a Startup

The entrepreneur extraordinaire shares his tips on how to become the next Steve Jobs

Live Talks Los Angeles is presenting an impressive roster of speakers in the next couple of months: Steve Martin with Martin Short, John Cleese, Anne Rice, Anjelica Houston. The format is simple: Two successful people sit on stage in an intimate theater and have a conversation. At the end the audience can ask them questions for 20 minutes.

Last night Peter Guber, chairman and CEO of Mandalay Entertainment, got on stage to chat with contrarian entrepreneur Peter Thiel. In case you haven’t heard of Thiel, he was one of the founders of PayPal and an early funder of dozens of tech companies including LinkedIn, Facebook, and Yelp. He also co-founded and chairs software firm Palantir Technologies. In the last couple years, he has most often been in the news for his controversial Thiel Fellowship, which gives college students $100,000 to drop out and create their own business ventures.

Thiel came to Live Talks last night to discuss his recent book, Zero to One: Notes on Startups, or How to Build the Future, which asks would-be entrepreneurs: What great company is nobody building? Contrary to popular belief Thiel thinks that if you are starting a company you should be looking to create a monopoly. Competition causes people to focus only on making money and beating their competitors, so they lose focus of what’s important. If you open a restaurant, you’re going to be competing with every restaurant around you; if you start something new in an area where nobody else is looking, you’ll be the only one, and people will come.

A lot of last night’s conversation between Thiel and Guber revolved around the ideas in his book, which is full of tips for those who want to create the next Google or Apple. If you have ambitions to be the next Steve Jobs, here are a couple of tips courtesy of Peter Thiel.

Start small and monopolize
“Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.”

Make it great from the beginning.
“Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example—are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.”

Founding matrimony
“When you start something, the first and most crucial decision you make is who to start with… Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much. Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice.”

On the bus of off the bus
“As a general rule, everyone you involve with your company should be involved full-time. Sometimes you’ll have to break the rule; it usually makes sense to hire outside lawyers and accountants, for example. However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned… Misalignment can creep in whenever colleagues aren’t together full-time, in the same place, every day.”

Cash is not king
“A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.”