Startup Lessons from Peter Thiel and Jack Dorsey – Keith Rabois on Starting Greatness with Mike Maples, Jr.

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Key Takeaways

  • EVERY startup problem has a solution
  • In startups, the earlier you identify a potential problem, the more options for a solution you have at your disposal
  • If you’re going to succeed as a startup, you need to be able to find and hire undiscovered talent
  • You don’t discover a startup market; you create it
    • “You imagine a better future, you create it, and then you sell tickets” – Keith Rabois
  • Always be on the lookout for anomalous data
    • “Anomalous data is the way you discover and have an epiphany about the future” – Keith Rabois
  • The team you build is the company you build
    • “With the right people, your chance of success should be somewhere between 30 45%, not 1-10%” – Keith Rabois

Books Mentioned

Intro

  • Keith Rabois (@rabois) is a General Partner at Founders Fund and the co-founder of Opendoor
    • Previously, Keith held executive roles at Paypal, LinkedIn, Slide, and Square

Keith’s Time at Paypal

  • While there, Keith worked with Peter ThielDavid SacksMax Levchin, and Elon Musk
  • “I had a near-death experience almost every day … Partially because a huge fraction of my job and responsibility was to keep people from killing us. We had a lot of enemies back then—Visa and Mastercard hated us, eBay hated us, the federal government post-9/11 wanted to regulate us, various states didn’t like us … I was managing these existential threats all day long.”Keith Rabois
    • Eventually, eBay acquired PayPal post-IPO: “One of the biggest reasons—perhaps the single biggest driver—of our ultimate acquisition by eBay, even after we had an IPO, was the feeling and fear that most of the executive team shared: although we had done an outstanding job juggling all these crises, eventually one might kill us … There was a significant fear that, at some point, someone might shoot a bullet at us that we wouldn’t correctly deflect.”

Lessons on Problem-Solving

  • 🎧 Failure doesn’t need to be an option
    • “One of my favorite metaphors comes from car racing: when you’re learning how to drive a car fast, the instructor tells you not to look at the pins, but rather to look at the path through the pins. To me, entrepreneurship is a lot like that. The problems are there, but you have to realize every problem has a solution—there’s always a path through.”Mike Maples
  • Stripe has the adage: Every problem is a leadership problem
    • Keith agrees: “The right people doing the right things tend to produce solutions”
  • 5 In startups, the earlier you identify a potential problem, the more options for a solution you have at your disposal
    • “As you wait, your set of options gets reduced. The earlier you identify a potential issue, the greater the menu of options and levers you have at your disposal … A lot of problem-solving is being two steps ahead of the curve, so you have the entire gamete of options at your disposal.” – Keith Rabois
  • Related to this, give Paul Graham’s Relentlessly Resourceful essay a read
    • The main takeaway: Hire relentlessly resourceful (AKA tenacious) people—the people who, when they see an obstacle, figure out how to go over, under, or around it (NO MATTER WHAT)
      • “When you have a company scaled on people who are relentlessly resourceful, not surprisingly, people walk in with answers that work” – Keith Rabois

Peter Thiel Taught Keith the Importance of Hiring Undiscovered Talent

  • If you’re going to succeed as a startup, you need to be able to find and hire undiscovered talent
    • “You MUST hire people who are undiscovered talents. You cannot recruit people that already proven.” – Keith Rabois
      • Why? – There will always be large incumbents outbidding you when trying to hire known talented individuals 
      • “If you can find people that don’t have proof points on their resume, and you can assess them accurately, you can compete in building a team that’s very differentiated without having to pay exorbitant cash compensations.”
  • Max Levchkin and Peter Thiel lived out this advice at PayPal by hiring from within their college networks
    • In a sense, they hacked the system: They recruited people they had pre-existing relationships with (and thus had an asymmetric ability to assess)
      • That said, after hiring, it’s challenging to manage these pre-existing relationships. To be successful, you must be clear-eyed about your hire’s strengths and weaknesses, and not everyone can do that well…
        • …Except Peter Thiel: “Peter’s a pretty Draconian manager. He can be pretty rational and very non-emotional. He’s extremely capable of assessing people around him that he’s known well, intensifying their strengths and weaknesses, and providing feedback.” – Keith Rabois

🎧 Manage People on Inputs, Not Outputs

  • Keith received this advice from Jeff Bezos
  • The rationale: “If you judge people based on outputs, nobody on your team will take on the more difficult tasks”Keith Rabois
    • So, to incentive employees to complete these extremely ambitious tasks, gauge the quality of their work based on how it effective it was at getting you towards an ambitious goal
      • In a sense, you’re judging the creativity and thoughtfulness that goes into their initiatives

How did Jack Dorsey’s management approach differ from Peter Thiel’s?

  • (Keith worked with Jack at Square)
  • At Square, everything was design-driven, not metrics-driven
    • On the flip side, at PayPal, the best way to win any sort of debate was quantitative
    • “At Square, everything was predicated more like Apple—the questions were: ‘What’s the best possible design? What’s the simplest possible solution?’ Go back to the drawing board until we have a more elegant, better-designed product.” – Keith Rabois
  • Secondly: “Peter believed his job was to make 3 or 4 decisions a year. He enabled and delegated to deputies he trusted to make every other decision.” Keith Rabois
    • (A few of those decisions revolved around who to promote/fire)
    • Jack, according to Keith, was a more “hands-on executive” who had had a deep understanding of all parts of the business and wanted to have an opinion/perspective on many things
      • (That said, over the past few years, Jack’s philosophy has shifted more towards Peter’s. In these Podcast Notes, Jack stated: If I have to make a decision, I see it as an organizational failure”)

It’s About the Vision

  • “What strikes me as a little similarity between the two [Jack and Peter]… It feels like both founders had the idea that you design the future; you don’t just stumble into markets. Instead, you have a deterministic view of what the future will be like, and then you bring the rest of the world along with you into that future.” Mike Maples
    • Keith adds: “Jack, on steroids, has a vision of what he wants to see in the world and how the world can be better. His products—whether Twitter, Square, or maybe in the future, something else—are designed to solve that problem; he has a top-down perspective.”
      • For instance, while Keith was there, Square employees weren’t allowed to A/B test products/services with users. Jack’s logic? “Users aren’t guinea pigs … You’re not allowed to give a sub-par experience to anybody. Everything should be perfect.”

Look for Anomalous Data

  • “I always teach: what you’re always trying to do, from the CEO down to an intern, is look for anomalous data. Anomalous data is the way you discover and have an epiphany about the future.” Keith Rabois
    • For example, after Square first launched to ~25 early users, Jack noticed they were starting to grow (without having done any marketing). Keith theorized: after someone saw Square’s product in the real-world, they wanted to become a user themselves. 
      • Thus, Keith hypothesized that there should be a high-correlation relationship between the number of Square credit card reader devices distributed and user sign-ups the following day/week (which ended up being the case—1% of all people transacting in any given day using Square’s product ended up signing up)
        • This real-world insight enabled Square to grow to their Series B without having to spend a cent on marketing

You Don’t Discover a Startup Market; You Create It

  • “You imagine a better future, you create it, and then you sell tickets”Keith Rabois
  • “To me, the best metaphor for creating a startup is like producing a movie” – Keith Rabois
    • Someone has a vision for a movie, writes a script, casts it, finances the production, markets the film with a trailer, and then distributes it (and hopefully people come to see it)

Hire a Team to Solve High-Risk Problems

  • Keith echoes Vinod Khosla’s advice: “The team you build is the company you build”
    • “With the right people, your chance of success should be somewhere between 30 45%, not 1-10%” Keith Rabois
  • It’s essential to understand the key risks your company is facing—the three most-likely things to go wrong
    • Then, hire world-class talent that you can delegate to solving those problems
  • After you employ that talent, tackle the hardest problems first, incrementally making the company easier to run (solve your problems in order of fatality risk)

Advice on Managing

  • Up until you have 20-50 employees: “I wouldn’t spend much time managing. You can manage through informal processes like osmosis.” – Keith Rabois
  • But, once everyone starts working under the same roof and the employee count starts to grow to 50+:
    • Keith recommends a weekly company-wide meeting 
    • Everyone should understand the company’s priorities, business equation, the most significant threats to the company, and what the company is doing to solve those threats
  • Once you have people that directly report to you, it’s valuable to have weekly/bi-weekly one-on-one meetings
    • High Output Management by Andy Grove discusses this more (which Keith highly recommends)
    • One important note: The junior employee should set the agenda for these one-on-one meetings, not the senior employee

Focus Your Energy on High-Leverage Activities

  • This is another concept from High Output Management
  • In essence, you only have so much energy—focus it on activities where a small injection of time can massively impact a large number of people
    • (This is why Keith is a fan of weekly company-wide meetings run by the CEO)

The Score Takes Care of Itself 

  • This is another book Keith highly recommends
  • The premise: When you focus on the inputs and get even the small things of things right, the output takes care of itself
    • Every single person in your organization should do everything precisely, accurately, and perfectly all the time (and if everyone does so consistently, success is imminent) 

Keith’s Advice to Founders Feeling Down

  • Know that the startup journey is very much a roller coaster ride—you can feel on top of the world on Friday, but by Monday, all Hell’s broken loose
    • EMBRACE IT: Get excited by the challenges, not terrified