Peter Thiel: You Are Not a Lottery Ticket | Interactive 2013 | SXSW

I thought I'd take a slightly different tack today and try to talk a little bit about what I think is the biggest philosophical question in all of these startups, maybe even in life in general, is that people have and it's, um, if It's like that. It's all just a matter of luck or how much of this is luck and how much of it is not luck when you start one of these businesses and do one of these things and it's kind of a big question that underlies a lot of these different endeavors that people do and I want to try to address that question at least indirectly today I want to talk a little bit about you know a little bit about the question of luck why it's very difficult to answer I want to suggest that we live in a society where people are incredibly predisposed to think that things They are dominated by luck and I want to at least suggest that there are some alternative ways of thinking about the future that are worth exploring.

Starting with this is probably kind of my general power, the general slide that I always have about the nature of progress, the nature of the future and when you think about how the 21st century is going to unfold, you can think that there are basically two axes to the 21st century. There is a technological axis and a globalization axis, they are very different. People always use these words interchangeably, but globalization is basically about copying things that already work. It's the story of China and the emerging world still exists, you know. In much of the world. , six billion out of seven billion people are still incredibly poor and what they will mainly have to do in the coming decades is just copy things that work, there are some things they can avoid copying bad ideas from developed nations, but many It is a type of horizontal or extensive progress and something like going from 1 to N, but there is also technology that does new things, a vertical or intensive progress and it is something like where you are the first person, company, inventor or artist in the history. of the world what to do to make something new goes from zero to one and what I want to suggest is that there is something very different about going from zero to one instead of from 1 to N 1 to n is there something like that?

It's this law of large numbers and you can run the experiment many times and see how things work, but when you go from zero to one there is a sense in which you know every type of event in the history of progress in the history of technology. Or there is something singular and non-repeatable about science and on and on, if we ask you if it's a certain invention, a certain startup, a certain artistic achievement, was this something that would have happened anyway? Was it something that was a total coincidence? It's actually a very difficult question to answer because you only have a sample size of one to go on and you can say with a sample size of one you know the variance becomes infinite so it's almost impossible. knowing if you were lucky or not and I think that is probably an important starting point, it is not entirely clear if it is luck or not and you can have certain prejudices in this, but in everything we are starting from scratch.

It's very, very difficult for one to say now, um, there is certainly some very slight anecdotal evidence that you can give, that it is certain that the argument against luck is that there are certain people who were successful in doing several businesses repeatedly, you know that There's probably the most famous one yet was achieved by Steve Jobs with you know and Pixar, you know, Jack Dorsey with Twitter square Mike, my colleague Elon from PayPal, who founded SpaceX and Tesla was very involved in Solar City, of course, you know that always There is a counter narrative. with these things, you can say well, this person, each one of these people had just one breakthrough and then everything else somehow took advantage of that, for all you know, every time you dig deeper into this question, was it luck?

Wasn't it luck? actually um, it's actually very difficult, it's very difficult to say, it's surprising, though, how much the way we talk about this has changed, so if you go, you know, if you go back in time, the classic way that people used to talk about it was that luck. it was something that had to be overcome or mastered, so you know, Thomas Jefferson, I'm a big believer in luck and I find that the harder I work, the more I have, which again suggests that is this, is this what you have to overcome or to dominate.

You know, that doesn't dominate things or you know, even simpler, Samuel Goldwyn, the harder I work, the luckier I get. I'm very much in contrast to that, you have sort of the dominant view today that success comes out of this whole context. the context is random, you know, maybe you were a member of the lucky sperm club, the lucky egg club, you know you were lucky where you were born and things like that, and that's what drives everything and There is a course that you know a version of. This applies to startups, you know the successful ones were accidental, you know, it's pretty clear how important a role luck plays.

I agree with Paul Graham on many things, but again, I think this is a place where everything happens automatically. channeling our default bias as a society and it is worth asking how much of this is true and how much is not true. What I want to focus on today is that there are two different directions you can take with this Luckily question, one is sort of past orientation, meaning, you know how I got here, you know what the contributing factors were to the success, but I want to focus on the future question of what do you know what. what you can do next and where you go where you go from here is this is there is kind of how it is and is the future is that something that is fundamentally dominated by chance or is somehow thinking about this is being dominant by the random sort of sort of incorrect or incomplete way to think about the future and I want to offer an alternative and alternative perspective on that.

Now I want to say a little bit about the structure of the future and how people can think about the future and how you can think about it. I think of it more simply as determinate or indeterminate and in particular I have a sort of two-by-two matrix for the future. It's kind of a consulting type idea, but basically you can say in the most simplistic way that the future is: optimistic or pessimistic and is it determined or indeterminate. An optimistic future is one in which you believe that things will be better than the present in whichever axis best defines a pessimistic future is one where you think things will generally be worse and then a determining future is one where you can map out reasonable quantities and plan against it and then an indeterminate one is somewhere where you have absolutely no idea and it's either just a random walk to the end, certainly depending on which of these quadrants you think is basically correcting the future tells you some very different approaches, at least some very different ones, that you would follow in terms of how you think about your life or the kinds of things you're doing and I want to try to develop this framework a little bit more as we think about this, for example, more simply on a determinant versus indeterminate axis, you know if you think that the future is determined, you will act with a certain degree of conviction, you will have specific ideas, and you will have some confidence to work toward those ideas if you are not determined.

The number one rule is to diversify because you have no idea what is going to work and you just have to try a lot of different things and you have to have some kind of portfolio approach. into the future, so I think one of the things that's always very interesting when you think about this thing of the determinate versus the indeterminate is that all of these things eventually become self-fulfilling, so if you think of it as determinate and then you focus on doing one thing very well that somehow leads to conviction and then maybe that becomes self-fulfilling if you think that it is fundamentally indeterminate you end up with a portfolio approach that is diversified and maybe that in itself becomes self-fulfilling and becomes somewhat indeterminate and it becomes more indeterminate in a way um, of course, there's, you know, on the optimistic versus pessimistic axis, the simple one is just, you know, are you fundamentally afraid of it?

Do you think it's fundamentally something that's going to be better and these kinds of perspectives also lead to very different ways of acting if you want to put this in a sort of historical context. I think I'll try to explain why I put these different zones in these quadrants, but I think the US in the '50s and '60s, and maybe even before, was fundamentally optimistic and determined that the future was clearly going to be better, people thought that each generation was going to be better than the previous generation and for the most part it was there in very specific ways.

There was a certain way that the frontier was going to develop. There was a way that, you know, cars would be faster. Planes would be faster. Rockets would be faster. There were all these very specific ways that the future would improve in a certain way. year to year and decade to decade, I think it's a very different kind of paradigm than the one that the United States had for a quarter of a century, from 1982 to 2007, where the future was going to be better, that was the official religion, it was still very optimistic, but If you were to ask how or why people didn't have a good answer for that and then it was just this mechanistic thing that would automatically improve from one way to another and then we were in this quadrant of extreme, indeterminate optimism, I would say that for about In a quarter century from 1982 to 2007, an indeterminate pessimism is probably what characterizes most of the rest of the developed world.

I would say that Japan has been in this area for the last 20 years, people have a feeling that the future is leaving. not be as good maybe a little bit worse and no one has any idea what to do and I think a kind of Europe has also drifted strangely into this indeterminate pessimistic quadrant where people think the future is worse but no one has any idea what to do Um , you can argue where China is placed on this, some people would put it in the certain optimistic quadrant. I tend to place it in the determining pessimistic quadrant.

He is very determined. People in China know what it will be like in 20 years. They are going to build roads in the cities and for the most part that is the case. I think it will be a somewhat poorer version of the developed world. People will grow old before they get rich. There is a very specific way to follow the trail. against that, but China comes out in this quadrant that is very different from you 80222 2000-2007 if you think about these quadrants in terms of the kind of financial form that could describe this, which is that if you are optimistic you don't need to save a lot of money if you are pessimistic you save a lot of money so if you are super optimistic you know the future will be better there is no need to save money and so you end up with a savings rate that is very low if you include government borrowing in the US today USA.

The current savings rate is -6%, so we're still incredibly optimistic about the future. We don't need to save money because the future will automatically be better, so perhaps we are still in an Indian summer of indeterminate optimism. On the other hand, for example, I would describe China as quite pessimistic because it has a savings rate close to 30, 30 percent of GDP is saved and therefore people, although there are some ways that things are improving year after year, he still thinks that They will be old before they get rich and therefore they need to save a lot of money, so you have access from low savings to high savings, from optimism to pessimism and then, if you do it in a certain way, It's like investing in cash or bonds or things like that, saving. in cash or bonds or things like that if you invest in specific things there are building ideas of specific companies that you invest in if you have a certain and defined vision you will have a high investment rate if it is indeterminate you will not know what specific things to invest in and then you end up with a low investment and a low investment rate, so one of the strange things about indeterminate optimism is that it is the quadrant that has both low savings and low investments and the question I will return to towards the end is whether that is a state If it's a stable quadrant, is it possible that the future will be better when no one saves and no one invests because no one thinks and everyone outsources all the thinking to other people?

One of the other ways it can be ordered. To describe this difference I want to give some different axes to describe this change from determined to indeterminate forms of the future. The mathematical version is that the dominant form of mathematics used to be calculus and has shifted to probability and statistics. The structural form is. that in a determining world you focus on substance, there are some specific substantive things that you focus on, in an indeterminate world, all you end up focusing on are processes and therefore what people talk about our world is what is the process to make something a lot.

Rather than the specific thing you're trying to do to talk about specific things is to define it and that seems strangely wrong in practice, you can think of these very different types of quadrants that dominate indeterminate optimism. The world is dominated by finance and law because these are the kind of process-oriented disciplines that one pursues if he has no idea about the future, if it comesIt's primarily about making sure the system's plumbing works, but it feels like the system just works automatically. In a certain optimistic world which is probably a world in which there is much more room for the art of engineering, you know very specific things, it is people who have ideas about the future that are radically different from the present, it is people who who have dreams about the future that no one else shares and who are willing to work and where the dreams of a substantially different and radically better world are not subsumed into some kind of random process, you know, a certain pessimist would be rationing in times of war, you know, indeterminate, pessimistic, all you end up doing is buying insurance.

I've talked in some context about being a bubble in education and I think you can think of the education bubble as a form of indeterminate pessimism where people don't really know what education is for, but it fundamentally acts as an insurance policy for avoid falling into bigger and bigger cracks in our society and anyway, you can think about these different quadrants and depending on which one dominates, there are very different types of industries that end up dominating, you know? To get a sense of what defined optimism or determined optimism looked like, you know, we can go back to these classic examples from American history, so there are things like the construction of the Transcontinental Railroad in the 19th century, where it was a radically different future where the world you know would be connected it's a gigantic undertaking by today's standards no one would do it people would say why are you building this railway to nowhere it doesn't make any sense it's costing too much money but somehow so it was built, the future took care of itself, you know, the classic example from the mid-20th century that I always like to cite is Robert Moses, who was a somewhat forgotten figure, he was probably the most important person in New York, more powerful than the mayor . or the governor of the city of New York, state of New York, respectively, for about a quarter of a century, he started out by becoming the commissioner of parks, ended up having seventeen different positions in government and showed up with his bulldozer and built parks, levels and neighborhoods and built some roads people could access parks, he built all kinds of roads on Long Island, the FDR Highway and there was, you know, one thing after another that was rebuilt, it kind of stopped in the middle of the 1960s, when he planned to build a The expressway connecting Brooklyn in New Jersey was going to pass through the southern tip of Manhattan.

They are going to raise Greenwich Village to the ground. The neighbors opposed it. They started saying that we're not really sure what the future really is. better than the present there will be this road with some kind of skyscraper right above the road and it is like a stop and at that point people basically you know what and once there was no longer a definitive vision of the future It also ended up with a place where the People stopped building things in New York, so it's possible that Moses was very wrong in saying that most things were misdirected, but he had this kind of powerful coordinating function and once the idea of ​​the future disappeared and People no longer believed that there was a future that looked very different from the present and was radically better than the present.

People stopped being able to build anything and nothing new. Infrastructure has been built in New York State for almost half. a century on any significant scale again to illustrate how different past ideas about the future were for those of you familiar with the San Francisco Bay Area there was something called the rubber plan in the late 1940s it was a plan to basically build two large earthen dams and Rockville, one between Marin County and Richmond, the other between San Francisco and Oakland, was going to turn the North Bay and South Bay into two giant freshwater lakes, there would be 20,000 acres of At a new landfill, a 32-lane highway will be built around the entire Bay Area and 30-story skyscrapers will be built around the entire San Francisco Bay.

You know, Rubber was kind of a schoolteacher and amateur theater producer, but in the world of the 1950s this idea was taken seriously enough to have congressional hearings. There was a giant model of the plan. It was concluded that there would be too much surgery and it wouldn't work at all, so people gave up after a while. but, again, you can't even imagine someone, a school teacher and an amateur theater producer, being able to have a plan to redesign a huge geographical area like this and change and change the world in a radical way. where we are in this world that is extremely different from the world of just 50 or 60 years ago and of course you know all the classics, all the classic versions of science fiction, underwater cities, cities on the moon, cities on Mars, cities on outer space, something like that. radically different and very defined ideas of the future that would become self-fulfilling prophecies of one kind or another and when you look at these images today, these things look, they don't look futuristic, they look dated, they look like they're really from the past, which is a kind of counter to this strange way in which things have changed.

You know, the classic, on the other hand, the classic version of indefinite optimism is a portfolio investment theory that you should invest in. in a stock market index, that's how you get the highest risk-adjusted returns because the movement of stocks is like the movement of atoms in the universe, it's fundamentally random and we can't know anything about it , actually we can maybe describe it. laws, statistical laws that describe randomness, but you can never know which specific stocks, specific companies or specific projects you should invest in, but you know that the stock market generally moves in a northeast direction and therefore, The most important thing is to find a way to get maximum diversification at minimum cost and make something of a portfolio investment, you know, in this boat.

One of the strange things that happens in the shift from defined to indefinite visions of the future is that there is this shift from engineering to finance and one of the things that happens is that money somehow becomes much more important and then the short version This is that in a defined world money is a means to an end because there are specific things you want to do with money in an indefinite world you have no idea what to do with the money and some money simply becomes an end in itself, which always seems a little bit perverse you just accumulate money and have no idea what to do with it, that seems a little crazy There is something to do, but I think that's actually what happens a lot and so So, to illustrate one way this flow could happen if you know how to start a successful business, you know you sell the company or you sell shares to investors in an initial public offering that you do. some money asks what do you do with the money you have no idea because no one knows what to do with anything and so you give the money to a big bank to help you do something what does the bank do?

He has no idea so he gives the money to a portfolio of institutional investors, what does the instance do? Every institutional investor has no idea, so everyone just invests in a portfolio of stocks, not too much in a single stock, because that suggests that you have opinions or ideas, and that's it. very dangerous because it suggests that somehow you are not with it and then what do the companies that make the money do? They have been told that all they should do is generate free cash flows because if they actually invested the money in things that would suggest that companies had ideas about the future and that would be very dangerous, so one of the worst things to do They may have is a company that is not profitable in this indefinite world and that has the opposite idea that I always like to say that we always like to invest in companies that are losing money, we do not like to invest in companies that are making money because the companies Unprofitable companies are actually companies that have a lot of ideas about what to do with their money, while a company that is hugely profitable on some level is a company that has run out of ideas and is especially crazy in a world where rates of interest are zero and they actually pay you less and less for the money and then of course the companies are profitable to generate cash flows, the cash flows eventually go back to the people and you cycle and repeat and this It's the approximate flow that happens in the world of indefinite optimism about the problem, you know?

I know this is a bit of an extreme image, but in effect it is a hermetically closed loop and at the end of the day no one does anything real with the money, it is completely abstracted and what ends up happening is that there are fewer and fewer things you can do. And one of the financial ways to illustrate this is if we look at real interest rates on 10-year bonds in the US, which is a measure of how much interest is earned on the bonds: what is the rate? Expected inflation rate is and has basically been trending steadily downward today is -0.6 percent, so 10-year bonds are yielding about 2 percent.

Expected inflation for the next decade is 2.6 percent, so when you invest in bonds in real terms you are waiting. lose minus 0.6 percent a year for a decade and it shouldn't even surprise us because there is no one in the system who has any idea what to do with the money. This has been a kind of constant criticism of the enormous deficits that the United States has. People running around constantly say you know there comes a point where the bond market is going to explode and interest rates are going to go up and one of the really big mysteries is that this hasn't happened year after year and I think the bottom line is The The fundamental reason this hasn't happened is that people really have no idea what to do with the money.

The last big idea people had about what to do with money that wasn't circular was to buy houses and invest in housing, and that was kind of like that. of the decade the idea of ​​the last decade that idea has gone out of fashion now that people no longer want to buy houses they have absolutely no idea what to do with the money interest rates real interest rates are becoming more and more In a sense, this system of indefinite optimism is gradually being exhausted. There's a way that, you know, what's the natural drift for something, from finance to insurance, I take care of everything, I'm not going to give it my all. lecture against Warren Buffett here, but I think there's a way in which Buffett was prescient and ahead of the curve and we basically steered most of his business toward insurance companies in disguise, which is kind of a world of indefinite doom and gloom and that's what dominates. in that kind of world and we can see how this indeterminacy affects us in many different fields, so if we look at politics in an indeterminate world, the most important position in politics is that of the pollster and what do you do in politics? a clue, but what you do is you take a survey and the surveys tell you what to do, they don't really tell you anything in the long term, but rather they tell you incrementally what you do at a given time and and as we approach a increasingly indeterminate world, there is a way in which, as you know, Paul takes has become more and more dominant and therefore the way we talk about political campaigns and elections is more or less how the people in surveys.

More than the ideas they're talking about, it's like Martin Luther King was here and said: I have a dream about a future that's really different. You know, the question is how do you do that survey? um, it's just that I would never do it and that's kind of like that. The way we avoid this, there are obviously cases where this goes very wrong. My sort of Exhibit A and my apologies to all the Palin fans and the public here, but, but, you know, people always say it's an incredible mystery why McCain chose Palin. 2008 I think it's not a mystery at all, the basic heuristic was that if you looked at all the Republican senators and governors in 2008, the Republicans were not very popular, they mostly polled around 40%.

Palin was 85 in Alaska. because when oil was $140 a barrel, Alaska was like Kuwait, everyone was getting huge checks from the government in the state of Alaska, she was doing extremely well, so there was no question that you would go with the person who got the biggest return, so you went with Palin even though it might not be able to extend to the US as a whole because the US wasn't producing much more oil than it was consuming, so , you know, and then there are our ways that we know the 2012 report. the election is reframed as a contract race between, say, Nate Silver and Dick Morris Silver was a better pollster and that's why he won, inInstead of saying that Obama had better ideas or that the ideas resonated better or that that's what people wanted to hear, that's not the substantive way that we talk about politics, um, talk about government more generally, you know.

Although government spending remains more or less the same as it has been for the last 50 or 60 years as a percentage of GDP, it is increasingly shifting towards transfer payments which are of course a way of saying that the government is out of ideas and what What to do with money just transfers it to other people and people people are supposed to have ideas but you don't have specific ideas of what to do there is a way you can see indeterminacy in literature, if you take a science fiction classic that You know, the 60's classic Space Odyssey, you know the text updates automatically every hour, one could spend a lifetime doing nothing but orbiting the ever-changing flow of information from a new satellite, so there is a specific, defined view of a radically different future that, as you know, corresponds reasonably to today's Internet.

Neuromancer 1984 the sky over the port was the color of the television tuned to a dead channel. The future of the channel is fundamentally static if you think about it in terms of philosophy. There are different ways to map these quadrants, but I would say that the optimistic indeterminate quadrant is fundamentally the quadrant of someone like Rawls or Nozick. People only think of them as opposites, but in reality they are both in the same category. Nozick. it's kind of the libertarian version, you have no idea what to do and therefore the individual is paramount. Rawls, you are taking advantage of ignorance, you have no idea what society you will be born into and therefore social democracy is paramount.

You have two very different ideas. but they both start from a kind of complete indeterminacy about the state of the world, the classical determinate, you could be on the left, you could be on the right, but there was a kind of Marx Hegel, all these people where You know, even going back to Bacon or Locke, there was some kind of definitive way in which things would get better and you could work towards a better future in one way or another and then of course you have the determined pessimist, the indeterminate pessimist. you think they tend to be more classical, the determining pessimist would be like Plato and Aristotle, there is a definite way things happen, although there are sort of limits and you can't have too much hope about technology, you are really improving the state of the world in any fundamental way and then probably the classical version of indeterminate pessimism and I think this is a kind of philosophical category that we are back in, it is a kind of Epicurean vision of the Lucretian universe where there is nothing but atoms and the void, the random atoms. they move through the void they run sometimes they bump into each other things happen eventually things break things fall apart casual paths everything there is nothing specific you can do that makes any sense everything, even if you know it's all going to marijuana, growing marijuana might be a good option There is something to address in this world, but basically this is, somehow, it has become the dominant view and it ends up being something strangely stoic because there is really nothing you can do about these forces larger ones that will ultimately hit you.

As much as one can hope to achieve a certain amount of equanimity and indifference about the fundamental randomness and meaninglessness of the universe, you know, indeterminacy and death, we think about the aging process and death very differently than we do. way we used to think of classical. The first scientific version was that death was a specific problem that had to be solved, there were specific diseases to solve, specific ways to conquer death; The contemporary way of thinking about it is fundamentally through the prism of insurance, which again is something indeterminate, more pessimistic. and the main thing we can do is actuarial mathematics.

You know what the probability is that you will die in a given year if you are that age, so if you are 30 years old you have about a 1000 chance of dying in the next year, if you are 80 years old you have a 1 in 10 chance of die next year and all we can do is describe these probabilities and I'm not saying that you know, by the way, that this probability Sight has nothing to do with it, I just want to illustrate how it dominates our thinking and therefore instead From trying to find a cure for death or a solution to the problem of aging, the best we can hope to do is find better ways. to calculate probabilities, better ways to give people in cells various life insurance policies and therefore suggest the kind of pseudodomain of a process that is fundamentally random and indeterminate, of course, you know, the problem The basic thing is that eventually your luck runs out, wow!

This works, so anyway, you know that at some point your luck runs out, so I think this question of do you know that indeterminate optimism is possible in the long run is this is the central question and it's something like this, this framework in which we are. I've had times where it's just one coin flip after another and you know you're probably not going to die in the next hour or the next six months. You'll probably be lucky that it comes up heads for the moment, but you never think very carefully. What remains of the future is whether it actually is an ultimately stable quadrant or not, so if you want to frame this as a general question, you could say that you know that an iterative process could lead to, if not the best of all possible worlds. at least to a world where there is a path of monotonous and potentially endless improvement, that's kind of the central idea of ​​this world of indeterminate or indefinite optimism, you know, the paradigmatic Pro, an indeterminate optimistic example is Darwin in the theory of Darwin's evolution. where you know that basically over billions of years this proliferation of different life forms develops and that is the paradigmatic example that we apply to all these different fields and we believe that things like that work now.

I think there are some paradigmatic counterattacks. The examples I want to highlight are the paradigmatic counterexample to failure in determinism: failed cities, and certainly several examples can be given, such as Los Angeles, which probably should have been the largest city in the world. United States, you know a fantastic climate and somehow you know that everything gradually went wrong with the expansion Los Angeles is still one of the best places in the world, you know, there is the example of Sur Paulo I was there for a day about a year ago, It is about a 12 mile drive from the city center to the airport, it takes about 35 minutes if there is no traffic for hours, if there is traffic on the nine lane highways take the helicopter at dusk, they are kind of of endless rows of cars with red lights backed by bumpers. -to collide with its 30 million people who live in enclaves of between a quarter and half a million each and, of course, what Paulo is still like, you know much better than places like Mumbai or Lagos, Nigeria or places like that, and if you had to rank The only reason the convergence theory of globalization is probably going to fail is that most cities in the developing world look like this and won't actually improve in any incremental, step-by-step way. passed.

Sorry, no real solution. incremental way to improve something like this and you know if you look at the populations that most people in the world right now live in these types of places, the type of political debates that we have right now are things like economics. versus environmentalism, which we describe as radically different perspectives on the world, but they're really just different visions of different undefined futures as sort of maybe economics can be a little more optimistic, environmentalism is a little more pessimistic. I personally think that As long as that's the framework, environmentalism will always win because it's indefinite, you know, optimism is unstable and the ecological critique of economic thinking is that the economist says we don't need to think about the environment because people will solve the problems. at every step of the process. way and then the counterargument is this, this probably won't work, but of course the problem with both is that in some ways you are subject to these much larger forces, it's the market, its nature, they are fundamentally a kind of random unknowable . statistical and you can't think about them coherently one way or another and of course this kind of approach is also very endemic to the way people think when they start businesses, only to come back to that and what one go. most commonly it's some kind of methodology where you have no idea what you're doing, but basically it should be an endless form of Darwinian testing.

A test might work if you are billions of years old, but in practice you tend to run out of money long before then and the problem is that somehow the search space of all companies is much larger than the search space from large companies, so in some ways I think that a/b testing is in general too inefficient process and the type of the iteration process, but you end up with this question, you end up on a very low hill where the iteration will do something that incrementally improves things at every step of time, but maybe you end up, you know, in a better part of an infinitely large slum or something, to use the failed city example, there's machine learning and there's all these different ways in which you don't think about the future, its character more strongly characterized, I think in some ways, by the same short time horizons and I think one of the things that is true both on the startup side and that can Be even more true on the side of people who invest in startups is that anything that takes more than a year is considered unrealistic and false because we can't have opinions on the future, so everything has to be over a time horizon. very short and we are dominated by people who do this kind of thing and there is a question: do you know how well this really works? and this is this is the official religion that we have today and I'm not, you know, I don't believe in the official religion, but I think you know, I think I just want, I want people to just at least keep in mind that this is the religion. , that everything is statistical, everything depends on luck and I think the most surprising thing is that the most successful companies somehow don't seem to fit this pattern, although you know we end up talking about it and then you know, you know, you know, After the 2007 crisis, we have seen this return to technology, but it was characterized because it was characterized more by companies that had very defined ideas, I think the iconic one for the last few years, at least until jobs disappeared, was Apple , which of course was the complete opposite of, you know, an indeterminate business.

Apple was one where there was a multi-year vision of the future that was sort of working against them. There are legitimate concerns about whether he still has that vision now that the jobs are no longer there, but that's really what's happening and of course that's not the way we normally talk about it, we normally talk about it and look, ya Do you know how. Which means Jobs was for all employees and so we know that these are people that I know who run businesses and they sort of handed out, harassed, handed out books describing how bad the jobs were for their employees to make their employees feel better. . themselves and so and and I think the real question to ask about something like Apple is do you know why people put up with this bad behavior and I think it was because it was actually this very compensatory narrative of the future that in a certain world , you know one of the most important metrics is the strength of the plan, what I often call the secret plan that you're working on, you know the types of companies that we've looked at, the founders spending over the years, the ones that have better and they want to be the ones that have somehow followed this vision of the future in the very, very long term and I think the last thought I would have about this is the most characteristic.

What happens with companies with a plan is that they do not sell and, There are often times when you must sell businesses. Know? I started PayPal, there were reasons why it was the right decision for us to sell the business when I did it in 2002 at eBay, but I think the most successful companies somehow have an idea of ​​the future that is very different from the present, it is not fully valued and therefore there is no point at which you should sell. I've told this anecdote before, but the most important moment in my mind in the history of Facebook occurred in July 2006, the company had been around for about two years at that time it was still just a university site, there may have been eight or nine million people.

On the site, the revenue was, I think, about thirty million with no profits and we received a takeover offer from Yahoo for a billiondollars, so we had the Monday morning board meeting in July 2006 or three of us on the board. Myself, Zuckerberg, Jim Brier and, you know, full disclosure. I think both Breyer and I, in general, thought we should probably take the money and run, but you know Zuckerberg started the meeting and the first thing he said was well, you know, it's kind of a formality. We have to have a quick board meeting that shouldn't take more than 10 minutes, you know, obviously we're not going to sell here and then we say, well, you know, we actually talked about this a little bit more, a billion dollars is a a lot of money and we kind of went through the whole discussion we had here today, it's like you know you own 25 percent of the company, there are so many things you could do with all the money you would make, well, no I really don't know what what to do with money I just started another social media site, but I like the one I already have, so why should I sell it?

It was kind of a summary of this whole discussion and, of course, something that you know that never In a way, I know that the immediate consequence was that there were, you know, an almost infinite number, not infinite, but there was a great number of stories about how you know how in the world you could have a CEO who was so crazy he wouldn't sell the company he didn't know you should take a billion dollars this is what you got when you had someone who was twenty-two when you had no adult in the company with you You know, you probably know that it was the worst decision anyone has ever made.

The best daredevil. You know, I was a little worried about that. You know, the kind of Founders Fund ideology we had was that we should always back the CEO. We should always back the founder, so we took that as a framework, but I think the only partial rationalization I could come up with for not taking the money was that I you know. We looked at the story on Yahoo, there were two other companies where they had offered a billion dollars that had been rejected, they were eBay and Google, so I concluded that at least a pseudoscientific argument could be made. that in each case someone had been offered a billion dollars and had turned it down, it had been the right thing to do, but I think this is a but, you know, the argument that Zuckerberg finally, finally, finally accepted, was that you know that there were all these new things that we were going to build at Facebook and it was clear that Yahoo was not valuing any of the products that had not yet been launched and wanted the opportunity to build those products and from then on I was pretty sure that Yahoo had it and This is not an anti-Yahoo thing.

I think it would be true for almost all of these companies that they didn't have a definite idea about the future and therefore they weren't adequately valuing things that didn't exist yet and therefore they were undervaluing the business and I think this is the challenge we all have. It is working towards a future that is not simply static like a dead television channel, but is a defined future and a radically better future. that can motivate, coordinate and inspire a number of people to change the world and go to a world where luck is something we must overcome and deal with as we go along the path, but not for something that becomes in this absolutely dominant force that stops all thought before it even begins.

Thank you very much and I'm not going to say good luck, thank you.