The Pete Quiñones Show - Pete Reads Peter Thiel's 'Zero to One' - Part 4

Episode Date: March 6, 2024

47 MinutesPG-13Pete continues reading and commenting on Peter Thiel's best-seller, Zero to One. In this fourth episode, Pete covers chapters 7 and 8: Follow the Money and Secrets.Get Autonomy Support Pete on His WebsitePete's PatreonPete's Substack Pete's SubscribestarPete's VenmoPete's Buy Me a CoffeePete on FacebookPete on TwitterPete on Twitter Become a supporter of this podcast: https://www.spreaker.com/podcast/the-pete-quinones-show--6071361/support.

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Essentials to seasonal must-habs. When the doors open, the deals go fast. Come see for yourself. The Lidl Newbridge Warehouse Sale, 28th to 30th of November. Lidl, more to value. All right. If you've thought about supporting the show, head on over to freemamie on the wall.com forward slash support.

You can see the many ways that you can support me there. The best way is right on that website. You can send me something in the mail. P.O. Box 413, Lineville, Alabama. 3026266.66. I look forward to trying to do a lot more this year with the show, and any support you can give me helps with that. Thank you. All right, I want to welcome everyone back to part four of reading zero to one, notes on startups or how to build the future by Peter Thiel with Blake Masters.

We have gotten through the first six chapters. The Challenge of the Future, Party Legacy, 1999, all happy companies are different, the ideology of competition, last move for advantage. You are not a lottery ticket. Tonight we're going to do follow the money and see, maybe we can do secrets as well. So this is chapter seven, follow the money. Money makes money. Quote, for whoever,

has will be given more and they will have an abundance. Whoever does not have, even what they have will be taken from them. Matthew 25, 29. Albert Einstein made the same observation when he stated that compound interest was, quote, the eighth wonder of the world, quote, the greatest mathematical discovery of all time, or even, quote, the most powerful force in the universe. Whichever version you prefer, you can't miss his message. Never underestimate exponential growth. Actually, there's no evidence that Einstein ever said any of these things. The quotations are all apocryphal. But this very misattribution reinforces the message.

Having invested the principle of a lifetime's brilliance, Einstein continues to earn interest on it from beyond the grave by receiving credit for things he never said. Most sayings are forgotten. At the other extreme, a select few people like Einstein and Shakespeare are constantly quoted and ventriloquized. We shouldn't be surprised, since small. minorities often achieved disproportionate results. In 1906, economist Wilfredo Pareto discovered what

became the Pareto principle or the 80-20 rule when he noticed that 20% of the people owned 80% of the land in Italy, a phenomenon that he found just as natural as the fact that 20% of the pea pods in his garden produced 80% of the peas. This extraordinarily stark pattern in which a few radically outstrip all rivals, surrounds us everywhere in the natural and social world. The most destructive earthquakes are many times more powerful than all smaller earthquakes combined. The biggest cities dwarf all mere towns put together. And monopoly businesses capture more value than millions of undifferentiated competitors. Whatever Einstein did or didn't say, the power law, so named because exponential equations

describe severely unequal distributions, is the law of the universe. It defines. It defines are surrounding so completely that we usually don't even see it. When I first learned about the Pareto principle, really 18 or 19 years old, that I was working at a company and I just saw it, saw that one in five of us was doing most of the work. And so when I was introduced to it, it was just the light went on. And I'm sure everyone has experienced this. Except most people think they're in the 20 when they're actually in the 80. This chapter shows how the power law becomes visible when you follow the money. In venture capital, where investors try to profit from exponential growth in early stage companies, a few companies attain exponentially greater value than

all others. Most businesses never need to deal with venture capital, but everyone needs to know exactly one thing that even venture capital has struggled to understand. We don't live in a normal world. We live under a power law. The power law of venture capital. Venture capitalists aim to identify, fund, and profit from promising early stage companies. They raise money from institutions and wealthy people, pull it into a fund and invest in technology companies that they believe will become more valuable. If they turn out to be right, they take a cut of the returns, usually 20%. A venture fund makes money when the companies in its portfolio become more valuable and either go public or get bought out by larger companies. Venture funds usually have a 10-year lifespan since it takes time for successful

companies to grow and exit. But most venture-backed companies don't IPO or get acquired. Most fail, usually soon after they start. Due to these early failures, a venture fund typically loses money at first. VCs hope the value of the fund will increase dramatically in a few years time to break even and beyond when the successful portfolio companies hit their exponential growth spurts and start to scale. The big question is when will this take off happen? For most funds, the answer is never. Most startups fail and most funds fail with them. Every VC knows that his task is to find the companies that will succeed. However, even seasoned investors understand the phenomena only superficially. They know companies are different, but they

underestimate the degree of difference. So I think anybody who has ever day traded and day traded successfully knows what this is. You don't make money. You don't blow things up on 50% of your trades. It's a small amount of trades that you blow things up on. The one thing you're trying to do is you're trying to minimize the loss on that 85% of trades. The error lies in expecting that venture returns will be normally distributed. That is, bad companies will fail, mediocre ones will stay flat, and good ones will return two times or even four times. Assuming this bland pattern, investors assemble a diversified portfolio and hope that winners

counterbalance losers. But this spray and prey approach usually produces an entire portfolio of flops with no hits at all. This is because venture returns don't follow a normal distribution overall. Rather, they follow a power law. A small handful of companies radically outperform all others. If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you'll miss those rare opportunities in the first place. This graph shows the stark reality versus the perceived relative homogeneity. Investment return, actual slides down to investment return.

and then company rank. You see the down. Our results at Founders Fund illustrate this skewed pattern. Facebook, the best investment in our 2005 fund, returned more than all the others combined. Palantir, the second best investment, is set to return more than the sum of every other investment aside from Facebook.

This highly uneven pattern is not unusual. We see it in all our other funds as well. This is in italics. the biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. This implies two very strange rules for VCs. First, only investing companies that have the potential to return the value of the entire fund. This is a scary rule because it eliminates the vast majority of possible investments.

in parentheses, even quite successful companies usually succeed on a more humble scale. This leads to rule number two. Because rule number one is so restrictive, there can't be any other rules. Consider what happens when you break the first rule. It's so funny that it brings up injuries in R.O. It's because I follow Mark Hendrys on Twitter pretty much all day. And pretty interesting guy. Andresen Horowitz invested $250,000 in Instagram in 2010.

When Facebook bought Instagram just two years later for $1 billion, Andresen netted $78 million, a 312 times return in less than two years. That's a phenomenal return, befitting the firm's reputation as one of the valleys best. But in a weird way, it's not merely enough because Andresen Horowitz has a 1.5,000, billion fund. If they only wrote $250,000 checks, they would need to find 19 Instagrams just to break even. This is why investors typically put a lot more money into any company worth funding, in parenthesis. And to be fair, Andresen would have invested more in Instagram's later rounds had it not been conflicted out by a previous investment.

VCs must find the handful of companies that will successfully go from zero to one, and then back them with every resource. I mean, it's, I don't think most people just don't have the stomach for it. Because you have to come out of somewhere. And I think most people have the stomach for that. I think even people, even a lot of people who have money to start with a large amount of money, don't have the stomach for it. Of course, no one can know what certainty X and T,

which companies will succeed, so even the best VC firms have a portfolio. However, this is in italics, every single company in a good venture portfolio must have the potential to succeed at vast scale. At Founders Fund, we focus on five to seven companies in a fund, each of which we think could become a multi-billion dollar business based on its unique fundamentals. Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets. And once you think that you're playing the lottery, you've already psychologically prepared yourself to lose. That's it. Why people don't see the power law? Why would professional VCs of all people

fail to see the power law? For one thing, it only becomes, clear over time and even technology investors too often live in the present. Imagine a firm invests in 10 companies with the potential to become monopolies, already an unusually disciplined portfolio. Those companies will look very similar in the early stages before exponential growth. It's a chart here. It's a beginning of a fund. There's an arrow-up investment return one times.

Then it says company rank, no divergence. and returns. Check out the video if you want to see this. Over the next few years, some companies will fail while others begin to succeed. Valuations will diverge, but the difference between exponential growth and linear growth will be unclear. Another graphic here, amid fund, the investment going five times and swinging down investment return. Company rank, the bottom. After 10 years, however, the portfolio. won't be divided between winners and losers, it will be split between one dominant investment and everything else. But no matter how unambiguous the end result of the power law, it doesn't

reflect daily experience. Since investors spend most of their time making new investments and attending to companies in their early stages, most of the companies they work with are by definition average. Most of the differences that investors and entrepreneurs perceive every day are between relative levels of success, not between exponential dominance and failure. And since nobody wants to give up on an investment, VCs usually spend even more time on the most problematic companies than they do on the most obviously successful. If even investors in specializing and exponentially growing startups missed a power law, it's not surprising that most everyone else misses it too. Power law distributions are so big that they hide in plain sight.

For example, when most people outside Silicon Valley think of a venture capital, they might picture a small and quick coterie like ABC Shark Tank, only without commercials. After all, less than 1% of new businesses started each year in the U.S. received venture funding and total VC investments accounts for less than 0.2% of GDP. But the results of those investments disproportionately propel the entire, economy. Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to us and astounding 21% of GDP. This would be 2013, 2014 numbers. Indeed, the dozen largest tech companies were all venture-backed. Together, those 12 companies are worth

more than $2 trillion, more than all other tech companies combined. I wonder what it would be today. Should look that up. What to do with the power law? The power law is not just important, it's not just important to investors, rather it's important to everybody because everybody is an investor. An entrepreneur makes a major investment just by spending her time working on a startup. Therefore, every entrepreneur must think about whether her company is going to succeed and become valuable. Every individual is unavoidably an investor too. When you choose a career, you act on your that that kind of work you do will be valuable decades from now. The most common answers to the question of future value is a diversified portfolio. Don't put all your eggs in one basket,

everyone has been told. As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible. The kind of portfolio thinking embraced by both folk wisdom and financial convention by contrast, regards diversified betting as a source of strength. The more you dabble, the more you are supposed to have hedged against the uncertainty of the future. When I look at this, investors who understand the power law make as few investments as possible. It reminds me of like a sales team. And if you have a sales team and say there's 20 people and you have, say, five of them, say four of them are your top sellers.

How are you going to distribute? How are you going to do your time? You're going to spend 80% of your time with your four top sellers and you're going to spend 20% of your time with the bottom 16. And the bottom 16, you may just move out and replace and move out and just cycle out and cycle out and cycle out. But life is not a portfolio, not for a startup founder and not for any individual. An entrepreneur cannot diversify herself. You cannot run dozens of companies. at the same time and then hope that one of them works out well. Less obvious, but just as important, an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve. Our schools teach the opposite. Institutionalized education traffics in a kind of

homogenized, generic knowledge. Everybody who passes through the American school system learns not to think in power law terms. Every high school course, period, last 45 minutes, whatever the subject. Every student proceeds at a similar pace. At college, model students obsessively hedge their futures by assembling a suite of exotic and minor skills. Every university believes in excellence and 100-page course catalogs arranged alphabetically according to arbitrary departments of knowledge seem designed to reassure you that, quote, it doesn't matter what you do as long as you do it well. That is completely false. It does matter what you do. You should focus relentlessly. on something you're doing at you're good at doing.

But before that, you must think hard about whether it will be valuable in the future. And what's funny is, it's like these last few sentences are those common sense, but, unless you go to a really good prep school, are you learning this? And I'm thinking about when I went to prep school and hearing this, I don't even know which prep schools, if the prep school I went to, and talk like this now. God, I hope it would. For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented.

If anything, too many people are starting their own companies today. People who understand the power law will hesitate more than others when it comes to founding a new venture. They know how tremendously successful they could become by joining the very best company while it's growing fast. The power law means that differences between companies will dwarf the different and roles inside companies. You could have 100% of the equity if you fully fund your own venture,

but if it fails, you'll have 100% of nothing. Owning just 0.01% of Google by contrast is incredibly valuable. More than 35 million as of this writing. If you do start your own company, you must remember the power law to operate it well. The most important things are singular. One market will probably be better than all others, we discussed in Chapter 5. One distribution strategy usually dominates all others, too, for that,

see Chapter 11. Time and decision-making themselves follow a power law, and some moments matter far more than others. See Chapter 9. However, you can't trust a world that denies the power law to accurately frame your decisions for you. So what's most important is rarely obvious. It might even be a secret, But in a power law world, you can't afford to think hard about where your actions will fall on the curve. This is, maybe it's chapter eight secrets. And we're only 19 minutes in. Cool. Gives a sip of water.

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It's a Black Friday secret. Keep it to yourself. Chapter 8, Secrets. Every one of today's most famous and familiar ideas was once unknown and unsuspected. The mathematical relationship between a triangle sides, for example, was secret for millennia. Pythagoras had to think hard to discover it. If you wanted in on Pythagoras' new discovery, joining a strange vegetarian cult, was the best way to learn about it.

Today, his geometry has become a convention, a simple truth we teach to grade schoolers. A conventional truth can be important. It's essential to learn elementary mathematics, for example, but it won't give you an edge. It's not a secret. Remember our contrarian question. What important truth do very few people agree with you on? If we already understand as much of the natural world as we ever will, if all of today's conventional ideas are already enlightened,

and if everything has already been done, then there are no good answers. Contrarian thinking doesn't make any sense unless the world still has secrets left to give up. There's a graph here with secrets which are hard in the middle. Arrow points off to conventions, which are easy on the left, and on the right, mysteries, which says are impossible. Of course, there are many things we don't yet understand, but some of those things may be impossible to figure out mysteries rather than secrets. For example, string theory describes the physics of the universe in terms of vibrating one-dimensional objects called strings. Is string theory true? You can't really design experiments to test it. Very few people, if any, could ever understand all its implications.

But is that just because it's difficult? Or is it an impossible mystery? The difference matters. You can achieve difficult things, but you can't achieve the impossible. Recall the business version of our contrarian question. What valuable company is nobody building? Every correct answer is necessarily a secret. Something important and unknown.

Something hard to do but doable. If there are many secrets left in the world, there are probably many world-changing companies yet to be started. This chapter will help you think about secrets and how to find them. Let's see. All right. Why aren't people looking for secrets? Most people act as if there were no secrets left to find. An extreme representative of this view is Ted Kaczynski,

infamously known as the Unabomber. Kaczynski was a child prodigy who enrolled at Harvard at 16. He went on to get a Ph.D. in math and became a professor at UC Berkeley. But you've only heard of him because of the 17-year terror campaign he waged with pipe bombs against professors, technologists, and business people. In late 1995, the authorities didn't know who or where the Unabomber was. The biggest clue was a 35,000-word manifesto that Kaczynski had written an anonymously mailed to the press. The FBI asked some prominent newspapers to publish it, hoping for a break in the case.

It worked. Kaczynski's brother recognized his writing style and turned him in. Assal. Well, people, people shouldn't, uh, you just think about your brother turning you in for something and how that would be terrible, but, you know, he was hurting people. But then there is a whole MK Ultra thing, but that's getting off track. So, You can go to Odyssey, my Odyssey channel and my reading with Aaron from Timeline Earth of all of Ted Kaczynski's manifesto. We did it in six episodes. It's no longer on YouTube because it's promoting a criminal organization if you talk about

him. You might expect that writing style to have shown obvious signs of insanity, but the manifesto is eerily cogent. What's funny is Blake Masters, who wrote this for Peter Thiel, when he was on, he was on Alex Kishah. I can't remember. I think it was Alex. They actually discussed the manifesto. They talked about said, okay.

Kaczynski claimed that in order to be happy, every individual needs to have goals whose attainment requires effort and needs to succeed in attaining at least some of those goals, the power process. what it's called. He divided human goals into three groups. Goals that can be satisfied with minimal effort, goals that can be satisfied with serious effort, goals that cannot be satisfied no matter how much effort one makes. This is the classic tricotomy of the easy, the hard, and the impossible. Kuzinski argued that modern people are depressed because all of the world's hard problems have already been solved. What's left to do is either easy or impossible, and pursuing these tasks is deeply unsatisfying. What you can do, even a child can do, what you can't do, even Einstein couldn't have done. So Kaczynski's idea was to destroy existing institutions, get rid of all technology,

and let people start over and work on hard problems and new. Kaczynski's methods were crazy, but his loss of faith in the technological frontier is all around us. Consider the trivial but revealing hallmarks of urban hipsterdom, faux vintage photography, handlebar mustache and vinyl record players all hark back to an earlier time when people were still optimistic about the future. If everything worth doing had already been done, you may as well feign an allergy to achievement and become a barista. There's a picture here of the classic sketch of Ted K. And then who could be Eminem with a horn room glasses and neck tattoo in a in a hoodie and it says hipster or unabomber.

All fundamentalists think this way, not just terrorists and hipsters. Religious fundamentalism, for example, allows no middle ground for hard questions. There are easy truths that children are expected to rattle off, and then there are the mysteries of God, which can't be explained. In between the zone of hard truths lies heresy. In the modern religion of environmentalism, the easy truth is that we must protect the environment. Beyond that, Mother Nature knows.

best, and she cannot be questioned. Free marketeers worship a similar logic. The value of things is set by the market. Even a child can look up stock quotes, but whether those prices made sense is not to be second guest, the market knows far more than you ever could. Why has so much of our society come to believe that there are no hard secrets left? It might start with geography. There are no blank spaces left on the map anymore.

If you grew up in the 18th century, there were new places. to go. After hearing tales of foreign adventure, you could become an explorer yourself. This was probably true up through the 19th and early 20th century. After that point, photography from National Geographic showed every Westerner what even the most exotic, under-explored places on Earth look like today. Today, explorers are found mostly in history books and children's tales. Parents don't expect their kids to become explorers any more than they expect them to become pirates or sultans. Perhaps there are a few dozen uncontacted tribes somewhere deep in the Amazon, and we know that there remains one last earthly frontier in the depths of the ocean, but the unseen seems accessible, seems less accessible

than ever. It reminds me of the, the, 2020 at the beginning, going down to see Titanic and the Sea the Titanic and that just imploded. Along with the natural fact that physical frontiers have received four social trends have conspired to root out belief in secrets. First is incrementalism. From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade. If you overachieve and end up learning something that's not on the test, you won't receive credit for it. But in exchange for doing exactly what's asked of you, and for doing it just a bit better than your peers, you'll get an A. This process extends all the way up through the tenure track, which is why academics usually chase large numbers of

trivial publications instead of new frontiers. Second is risk aversion. People are scared of secrets because they are scared of being wrong. By definition, a secret hasn't been vetted by the mainstream. If your goal is to never make a mistake in your life, you shouldn't look for secrets. The prospect of being lonely but right, dedicating your life to something that no one else believes, is already hard. the prospect of being lonely and wrong can be unbearable. Third is complacency.

Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done? Every fall, the deans at top law schools and business schools welcome the incoming class with the same implicit message. You got into this elite institution. your worries are over. You're set for life. But that's probably the kind of thing that's true, only if you don't believe it. Fourth is flatness.

Fourth is flatness. As globalization advances, people perceive the world as one homogenous, highly competitive marketplace. The world is flat. Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself if it were if it were possible to discover something new wouldn't someone from a faceless global talent pool of smarter and more creative people have found it already? The voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique. I honestly had that attitude and so I was about 28 or 29 years old.

just why it's why would i why would i be able to do something that somebody else isn't isn't already able to do glad i broke out of that there's an optimistic way to describe the results of these trends today there's an optimistic way to describe the results of these trends today you can't start a cult 40 years ago people were more open to the idea that not all knowledge was widely known. From the Communist Party to the Hari Krishna's, large numbers of people thought they could join some enlightened vanguard that would show them the way. Very few people take unorthodox ideas seriously today, and the mainstream sees that as a sign of progress. We can be glad that there are fewer crazy cults now, yet that gain has come at a great cost.

We have given up our sense of wonder at secrets left to be discovered. Next section is called the world according to convention. How must you see the world if you don't believe in secrets? You have to believe we've already solved all great questions. If today's conventions are correct, we can afford to be smug and complacent. God is in heaven. God's in his heaven. All is right with the world. For example, a world without secrets would enjoy a perfect understanding of justice.

Every injustice necessarily involves a moral truth that very few people recognize early on. In a democratic society, a wrongful practice persists only when most people don't perceive it to be unjust. At first, only a small minority of abolitionists knew that slavery was evil. That view has rightly become conventional, but it was still a secret in the early 19th century. To say that there are no secrets left today would mean that we live in a society with no hidden injustices. In economics, disbelief in secrets leads to faith inefficient markets, but the existence of financial bubble shows that markets can have extraordinary inefficiencies.

And the more people believe in efficiency, the bigger the bubbles get. In 1999, nobody wanted to believe the internet was irrationally overvalued. The same was true of housing in 2005. Fed Chairman Alan Greenspan had to acknowledge some signs of froth in local markets. but stated that a bubble in home prices for the nation as a whole does not appear likely. I remember in 2005, late 2005, I was living in Hollywood, Florida. My dad was living in Tampa, Florida. And my dad was talking to me, constantly calling me and telling me about how the housing market was going to hell there.

How prices were just dropping. And it was just, he didn't know what to do. He didn't know because he owned a couple properties and everything. And yeah, I mean, it was just, it's funny that he mentioned as 2005, because that's when it really started to present itself. The market reflected all knowable information and couldn't be questioned. Then home prices fell across the country and the financial crisis of 2008 wiped out trillions. The future turned out to hold many secrets that economists could not make, vanish,

simply by ignoring them. What happens when a company stops believing in? The sad decline of Hewlett Packard provides a cautionary tale. I did the first computer I ever bought. No, that was a compact. In 1990, the company was worth $9 billion. Then came a decade of innovation. In 1991, HP released the Deskjet 500C, the world's first affordable color printer.

In 1993, it launched the Omnibook, one of the world's first super portable laptops. The next year, HP released the OfficeJet, the world's first all-in-one-one-printerboarder. printer fax copier. This relentless product expansion paid off. By mid-2000, HP was worth $135 billion. But starting in late 1999, when HP introduced a new branding campaign around the imperative to invent, it stopped inventing things. In 2001, the company launched HP services, a glorified consulting and support shop. In 2002, HP merged with compact, there we go, presumably because it didn't know what else to do. By 2005, the company's market cap had plunged to 70 billion, roughly half of what had been just five years earlier. H.P.'s board was a microcosm of the dysfunction.

It split into two factions, only one of which cared about new technology. That faction was led by Tom Perkins, an engineer who first came to HP in 1963 to run the company's research division at the personal request of Bill Hewlett and Dave, Dave Packard. At 73 years old in 2005, Perkins may as well have been a time-traveling visitor from a bygone age of optimism. He thought the board should identify the most promising new technology and then have HP build them. But Perkins faction lost out to its rival, led by chairwoman Patricia Dunn. A banker by trade, Dunn argued that charting a plan for few, future technology was beyond the board's competence. She thought the board should restrict itself to a night watchman role. Was everything proper in the counting department? Were people following all the rules? Oh, Karen. Amid this infighting, someone on the board started leaking information to the press. When it was exposed, that Dunn arranged a series of illegal wiretaps to identify the source. The backlash was worse than the original dissension, and the board was disgraced.

Having abandoned the search for technological secrets, HP obsessed over gossip. As a result, by late 2012, HP was worth just $23 billion, not much more than it was worth in 1990, adjusting for inflation. The case for secrets. You can't find secrets without looking for them. Andrew Wiles mistreated that when he proved Fermat's last theorem after 358 years of fruitless inquiry by other mathematicians, the kind of sustained failure that might have suggested an inherently impossible task. Pierre de Fermat had conjectured in 1637 that no integers integers A, B, and C could satisfy the equation of A, A to the n plus B to the n equals C to the N.

For any integer n greater than two, he claimed to have a proof, but he died without writing it down. So his conjecture long remained a major unsolved problem in mathematics. Wiles started working on it in 1986, but he kept it a secret until 1993. When he knew he was nearing a solution, after nine years of hard work, Wiles proved the conjecture in 1995. He needed brilliance to succeed, but he also needed a faith in secrets. If you think something hard is impossible, you'll never even start to achieve it. belief in secrets is an effective truth. The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.

There is more to do in science, medicine, engineering, and in technology of all kinds. We are within reach not just a marginal goal set at the competitive edge of today's conventional disciplines, but of ambitions so great that even the boldest minds of the scientific revolution hesitated to a them directly. We could cure cancer, dementia, and all the diseases of age and metabolic decay. We can find new ways to generate energy that free the world from conflict over fossil fuels. We can invent faster ways to travel from place to place over the surface of the planet. We can even learn how to escape it entirely and settle new at frontiers. But we will never learn any of these secrets unless we demand to know them and force ourselves to look.

The same is true of business. great companies can be built on open but unsuspected secrets about how the world works. Consider the Silicon Valley startups that have harnessed the spare capacity that is all around us, but often ignored. Before Airbnb, travelers had little choice but to pay high prices for the hotel room, and property owners couldn't easily and reliably rent out their unoccupied space. basically now Airbnb is is expensive more expensive the most hotel rooms especially the cleaning fees so if anybody

is an Airbnb renter right now and their cleaning fees are retarded or hidden you can go fuck yourselves Airbnb saw untapped supply and unaddressed demand where others saw nothing at all the same is true of private car services Lyft and Uber

few people imagine that it was possible to build a billion-dollar business by simply connecting people who want to go places with people willing to drive them there. We already had state licensed taxi cabs and private limousines. Only by believing in and looking for secrets could you see beyond the convention to an opportunity hidden in plain sight. The same reason that so many internet companies, including Facebook, are often underestimated. Their very simplicity is itself an argument for secrets. If insights that look so elementary in retrospect can support important and valuable businesses, there must remain many great companies still to start.

How to Find Secrets There are two kinds of secrets, secrets of nature and secrets about people. Natural secrets exist all around us. To find them, one must study some unexpected, as undiscovered aspect of the physical world. Secrets about people are different. They are things that people don't know about themselves or things they hide because they don't want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask. What secrets is nature not telling you?

What secrets are people not telling you? It's easy to assume that natural secrets are the most important. The people who look for them can sound intimidatingly authoritative. This is why physics PhDs are notoriously difficult to work with because they know. the most fundamental truths, they think they know all the truths. But does understanding electromagnetic theory automatically make you a great marriage counselor? Does a gravity theorist know more about your business than you do? At PayPal, I once interviewed a physics, PhD for an engineering job.

Halfway through my first question, he shouted, stop. I already know what you're going to ask. But he was wrong. It was the easiest no higher decision I've ever made. And could you, anyone, I don't know how many interviews I've given. I've done. If somebody interrupted you on the first question, are you hiring them? That's completely insane.

The hubris. Secrets about people are relatively underappreciated. Maybe that's because you don't need a dozen years of higher education to ask the questions to uncover them. What are people not allowed to talk about? What is forbidden or taboo? Sometimes looking for natural secrets and looking for human secrets lead to the same truth. Consider the monopoly secret again. Competition and capitalism are opposites.

If you didn't already know it, you could discover it the natural empirical way. Do a quantitative study of corporate profits and you'll see they're eliminated by competition. But you could also take the human approach and ask, why are people running companies not, what are people running companies not allowed to say? You would notice that monopolist downplay their monopoly status to avoid scrutiny while competitive firms strategically exaggerate the uniqueness. The differences between firms only seem small on the surface. In fact, they are enormous.

The best place to look for secrets is where no one else is looking. Most people think only in terms of what they've been taught. Schooling itself aims to impart conventional wisdom. So you might ask, are there any fields that matter but haven't been standardized an institution? physics, for example, is a real major at all major universities, and it's set in its ways. The opposite of physics might be astrology, but astrology doesn't matter. What about something like nutrition? Nutrition matters for everybody, but you can't major in it at Harvard.

Most top scientists go into other fields. Most of the big studies were done 30 or 40 years ago, and most are seriously flawed. The food pyramid that told us to eat low fat and enormous amounts of grains was probably more of a product of lobbying by big food than real science. Its chief impact has been to aggravate our obesity epidemic. There's plenty more to learn. We know more about the physics of faraway stars than we know about human nutrition. It won't be easy, but it's not obviously impossible. Exactly the kind of field that could yield secrets. Let me give me a second here to stop something.

All right. What to do with secrets? If you find a secret, you face a choice. Do you tell anyone, or do you keep it to yourself? It depends on the secret. Some are more dangerous than others, as Faust tells Wagner. The few who knew what might be learned, foolish enough to put their whole heart on show,

and reveal their feelings to the crowd below, mankind has always crucified and burned. Unless you have perfectly conventional beliefs, it's rarely a good idea to tell everybody, everything that you know. So who do you tell? Whoever you need to and know more. In practice, there's always a golden mean between telling nobody and telling everybody, and that's a company.

The best entrepreneurs know this. Every great business is built around a secret that's hidden from the outside. A great company is a conspiracy to change the world. When you share your secret, the recipient becomes a fellow conspirator, as Tolkien wrote in Lord of the Rings. The road goes ever on and on, down from the door where it began. Life is a long journey. The road marked out by the steps of previous travelers has no end in sight,

but later on in the tail, another verse appears. Still around the corner, there may wait, a new road or a secret gate, and though we pass them by today, tomorrow we may come this way, and take the hidden paths that run towards the moon or towards the sun. The road doesn't have to be infinite, After all, take the hidden paths. All right. That brings me up to chapter nine.

So that's enough for today. Then release this. Remind you there will be ads in this. And you can avoid the ads by subscribing to my website, my Patreon. and my subscribe star where if you do any of those you'll get these episodes ad free and you can find all of that at freemam beyond the wall.com forward slash support and i think this is great the the first half of the first chapter that we read which was called um follow the money i thought that was even I when I first read it

the first couple times I read it I was like eh eh eh it's all right but the second half of that chapter and the chapter on secrets I think that this is really good stuff and I think that if people got through that first part they invaluable

this is invaluable so come back in a couple come back in a couple days for chapter nine is foundations the mechanics the mechanics of Mafia. It's Chapter 10. We've been talking about that lately. And yeah, so I just want to thank you all for

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