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

I thought I'd sort of take a somewhat different tack today and know try to talk a little bit about what I think the biggest single philosophical question in all these startups maybe even in life generally is that people have and it's um it's whether is it all just a matter of luck or how much of this is luck and how much is not luck when you start one of these businesses and and do do one of these things and it's sort of a big question that underlies a lot of a lot of these different ventures

that people do and I want to I want to try to tackle 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 hard to answer I want to suggest to you that we live in a society where people are incredibly biased to thinking that things are dominated by luck and I want to at least suggest that there are some alternate ways of thinking about the future that it's it's worth for us to explore um let me let me start

with this is probably sort of my my general might the general slide that I always have on 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's a technology axis and a globalization axis they're they're 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 there's still you know much the world six billion out

of seven billion people are still incredibly poor and what they mainly have to do in the next few decades is just copy things that work there's some things where they can avoid copying bad ideas from from the developed nations but a lot of it is the sort of horizontal or extensive progress and sort of going from 1 to N but then there's also technology doing new things vertical or intensive progress and it's sort of where you're the first person or business or inventor or artist in the history of the world to do to do something

new it's going from from zero to one and what I want to suggest is that there's there is something sort of very different about going from zero to one instead of 1 to N 1 to n is there sort of is this law of large numbers and you can sort of run the experiment many times and sort of see how things work but you when you go from zero to one there's a sense in which you know every every sort of event in the history of progress in the history of technology or science has something

singular and non-repeatable about it and so and so if we ask you know is a given invention a given startup a given artistic achievement was this something that would have happened anyway is it something was a total fluke it's actually a really hard question to answer because you only have sort of a sample size of one to go on and you can sort of you can sort of say that that with a sample size of one you know the variance becomes infinite so it's almost impossible to know whether you were lucky or not and I

think that's probably this sort of important starting point to have is that it's completely unclear whether or not it's luck or not and you can have certain biases on this but in anything we're going from zero to one it's very very hard to say now um there certainly is some very mild anecdotal evidence that that you can give that that's certain that the anti luck argument is that there are certain people who succeeded in doing various businesses on a repeat basis you know there's probably perhaps most famously still achieved Steve Jobs with you know and

Pixar you know Jack Dorsey with square Twitter Mike my colleague Elon from PayPal who went on to start SpaceX and Tesla was heavily involved in Solar City of course you know there's always a counter-narrative with these things you can say well this person just each of these people had just one big breakthrough and then everything else was somehow leveraged off of that and so you know whenever you sort of drill down on this question was it luck was it not luck it's actually um it's actually really hard it's really hard to say it is striking

however how much the way we talk about this has changed and so if you go you know if you go back in time the classical way people used to talk about it was that luck was something to be overcome or to be mastered so you know thomas jefferson i'm a great believer in luck and i find the harder I work the more I have of it which again suggests that it's it's this it's this thing to to overcome or to you know that's uh 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 something like today's dominant view where success stems from sort 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 stuff like that and that sort of is what drives everything and there's a course you know a version of this that applies to startups that you know the successful ones were accidental you know it's pretty clear how big

a role luck plays I agree with Paul Graham on an awful lot of things but but again I I think this is sort of a place where it's just automatically channeling our default bias as a society and it's worth asking how much of this is true and how much is is not true what I want to focus on today is um is not so much in those are two different directions you can go with this question of luck one is sort of the past orientation which is you know how did I get here you know

what were the factors that contributed to to success but I want to focus instead on instead I want to focus on the future question of of what you know what you can do next and where you go where you go from here is this is there sort of is is and is the future is that something that's fundamentally dominated by chance or is somehow thinking of this is being dominant by chance somewhat of a somewhat of a wrong way or an incomplete way to think about the future and want to offer the alternate and alternate

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 and you can think of it I think most simply as being determinate or indeterminate and in particular I have the sort of two-by-two matrix for the future it's sort of a consulting type type idea but you can basically on most simplistically you can say that the future is either optimistic or pessimistic and it's either determinate or indeterminate an optimistic future is one where you believe things will be better than the

present on whatever axis defines better a pessimistic future is one where you think things will generally be worse and then a determinant future is one where you can sort of map out reasonable amounts of it and and plan against it and then an indeterminate one is a is where you have absolutely no clue and it's or just a random walk all the way certainly depending on which of these quadrants you believe is basically correct out the future it tells you some very different at least some very different approaches that you would pursue in terms of

how you think about your life or the kinds of things you're doing and I want to sort of try to develop this framework a little bit more as we as we as we think about this so for example most simply on a determinant versus indeterminate axis you know if you believe the future is determinate you will act with with some degree of conviction you'll have specific ideas and you'll have some confidence to to to work towards those ideas if it is indeterminate on the number one rule is to diversify because you have no idea what's

going to work and you should just try lots of different things and should have some sort of a portfolio approach to the future and so I think one of the things that's always very interesting when you think of this determinate versus indeterminate thing is that all these things that ultimately become self-fulfilling so if you if you think it's determinate and then you focus on doing one thing extremely well that sort of leads to conviction and then maybe that becomes self-fulfilling if you think that it's fundamentally indeterminate you end up with a portfolio approach it's diversified

and it has maybe that itself becomes self-fulfilling and becomes somewhat indeterminate and it becomes more indeterminate in a way um there's of course on 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 sorts of perspectives also lead to very different ways to act if you want to if you want to put this in sort of a historical context I think that I'm going to try to develop explain why I put these

different zones in these quadrants but I think the u.s. in the 50s and 60s and maybe even before then was fundamentally optimistic and determinate the future was clearly going to be better people thought that every generation was going to be better off the generation came before and it was for the most part in very specific ways there was a there was a determinate way in which the frontier was going to be developed there was a way that you know cars would get faster planes would get faster rockets would get faster there was sort of all

these very specific ways that the future would get better from year to year and decade to decade I think is sort of a very different paradigm that the US had for a quarter century from 1982 to 2007 where the future was going to be better that was the official religion it was still sort of very optimistic but if you asked how or why people had no good answer for it and so it was just this this mechanistic thing that would automatically get better in one form another and so we were sort of in this quadrant

of extreme indeterminate optimism I would say for about a quarter of a century from the period of 82 to 2007 an indeterminate pessimism is probably what characterizes most of the rest of the developed world I would say Japan's been in this zone for for the last the last 20 years people have a sense the future is going to be not that great maybe a little bit worse and nobody has an idea of what to do and I think sort of Europe has weirdly drifted into this indeterminate pessimistic quadrant as well where people think the future

is worse but nobody has any idea what to do um you can sort of argue where you put China on this some people would put in the determinate optimistic quadrant I tend to put it on the determinant pessimistic quadrant it's very determinate people in China have a they know what it's going to look like in 20 years they're going to build out the highways in the cities and for the most part it's it I think it is going to be a somewhat poorer version of the developed world people will get old before they get rich

there's a very specific way to to track against that but China comes out on this quadrant that's very different from the you 80222 2000-2007 if you if you think of these quadrants in terms of in terms of the sort of a financial way you could describe this which is that if you're optimistic you don't need to save a lot of money if you're pessimistic you save a lot of money so if you're super optimistic you know the future is going to be better there's no need to save any money and so you end up with

a savings rate that's that's very low if you include a government borrowing in the u.s. today the u.s. savings rate today stands at minus 6% so we're still incredibly optimistic about the future we don't need to save any money because the future will automatically be better and so we're still maybe in an Indian summer of indeterminate optimism on the other hand for example I would describe China's quite pessimistic because it has a savings rate of something close to on 30 30 percent of GDP gets saved and so people even though there's some ways in which

things are getting better from year to year people still think they'll be old before they get rich and therefore they need to save a lot of money so you have this low savings to high savings access from optimism to pessimism and then if you sort of that'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's specific company's buildings ideas you invest in if you have a definite determinate view you'll have a high investment rate if it's indeterminate you will

not know what specific things to invest in and so you end up with a low low investment on low investment rate and so so one of the strange things about indeterminate optimism is that it's the quadrant that has both low savings and low investment and the question I will come back to towards the end is whether that's a state that's whether that's a stable quadrant at all is it possible for the future to be better when no one saves and no one invests because no one's thinking and everyone's outsourcing all the thinking to other people

one of the other ways you can sort of describe this difference on I want to give a few different axes for describing this shift from determinate to indeterminate ways of the future the mathematical version is that the dominant form of mathematics used to be calculus and it's shifted to probability and statistics the structural way is that in a determinant world you're focused on substance there are some specific substantive things you focus on in an indeterminant world all that you end up focusing on are processes and so what people talk about our world is what's the

process for doing thing something much more than what is the specific thing you're trying to do to talk about specific things is to definite and that seems to two to weirdly to weirdly wrong in practice you can sort of think of these very different types of quadrants that dominate the indeterminate optimistic world is dominated by finance and law because these are the kinds of process oriented disciplines that that you pursue if you have no idea about the future if it's fundamentally about making sure that the piping of the system it works but you have the

sense the system just sort of works automatically on in a determinate optimistic world that's probably a world in which there's much more room for engineering art you know very specific things it's people who have ideas about the future that are radically different from the present it's people who have dreams about the future that nobody else shares and that they're you know willing to work towards and where the dreams of a substantive Lee different and radically better world are not subsumed towards some sort of random process you know determinate pessimistic would be wartime rationing you know

indeterminate pessimistic all you end up doing is buying insurance I've spoken in some context about to being a bubble in education and I think you can think of the education bubble a form of indeterminate pessimism where people are they don't really know what the education is for but it's fundamentally acts as an insurance policy to avoid falling through the larger and larger cracks in our society and so anyway you can sort of think about these different quadrants and depending on which one dominates there's sort of very different kinds of industries that that end up dominating

you know to have a picture of what definite optimism or determinate optimism looked like you know we can we can go back to these classic examples from from US history so there are things like like the construction of the Transcontinental Railroad in the in the 19th century uh where it was a radically different future where the world you know would be connected it's a gigantic undertaking by today's standards nobody would do it people would say why are you building this railroad to nowhere it doesn't make any sense it's costing too much money but somehow as

it was built the future sort of took care of itself you know the classic mid 20th century example I always like to cite is Robert Moses who was this some somewhat forgotten figure he was probably the most important person in in New York more powerful than the mayor or the governor of New York City New York State respectively for about a quarter century he started by becoming the parks commissioner he ended up having seventeen different positions in government and he sort of show up with his bulldozer and build parks and levels and neighborhoods and build

some highways people could have access to the parks he built all the sort of roadways on Long Island the FDR expressway and there was sort of you know one thing after another that got rebuilt it sort of stopped in the mid 1960s when he planned to build a highway connecting Brooklyn in New Jersey it was going to go through the southern end of Manhattan they're going to sort of raise Greenwich Village to the ground the neighbors sort of objected they started saying we're not quite sure that the future actually is be better than the present

there's gonna be this highway with sort of skyscrapers right on top of the highway and and it's sort of it sort of stopped and at that point people basically you know what and once there was no longer a definite view of the future you also ended up with a place where people stopped building things in New York and so it's possible that Moses was very wrong that most of the things were misdirected but it did have this sort of powerful coordinating function and and once the idea of the future disappeared and people no longer believed

that there was a future that was that looked very different from the present and that was radically better than the present people stopped being able to build anything and nothing new an infrastructure sense has been built in New York State for close to half a century on any meaningful scale again to sort of illustrate how different past ideas of the future were for those of those those of you familiar with the San Francisco Bay Area there was this thing called the rubber plan up in sort of the late 1940s it was a plan to basically

build two large earth and Rockville dams one was between Marin County and Richmond the other between San Francisco and Oakland it was going to turn on the North Bay in the South Bay into two giant freshwater lakes there'd be 20,000 acres of new landfill there's going to be a 32 lane highway built around the entire Bay Area and you have sort of 30 story skyscrapers built around the entire San Francisco Bay you know rubber was sort of a schoolteacher amateur theater producer but in the world of the 1950s this idea was taken seriously enough that

you had congressional hearings there was you know a giant mock-up of the plan it was concluded there would be too much of operation and wouldn't quite work and so people sort of gave up on it after a while but again you cannot even imagine someone someone who's a schoolteacher and amateur theater producer being able to have a plan to just re-engineer a huge geographical area like this and and change and change the world in a in a radical way this is again sort of where we're in this world that's extremely different from the world of

just 50 or 60 years ago and of course you know all the classic all the classic versions of science fiction cities underwater cities on the moon cities on Mars cities in outer space sort of radically different and very definite ideas of the future that would sort of become self-fulfilling prophecies of one sort or another and when you sort of look at these pictures today these things look they don't look futuristic they look dated they look like they look like they really are sort of from the past which is sort of a against for this very

strange way in which things have changed um you know the classic by contrast the classic version of indefinite optimism is a portfolio investing theory it is that you should invest in a in a stock market index that's the way you get the highest risk adjusted returns because the motion of stocks is like the movement of atoms in the universe it's fundamentally random and we can't know anything about it we can just actually we can maybe describe the laws the statistical laws that describe the randomness but what specific stocks or specific companies or specific projects you

should invest in you can never know and but you know the stock market generally moves in a in a northeasterly direction and therefore the most important thing is to find the way to get maximum diversification at minimum cost and and do something like a portfolio investing you know in this ship one of the strange things that happens in the shift from definite to indefinite views of the future is that there is this shift from engineering to finance and and and one of the things that happens is that money somehow becomes much more important and so

the soundbite version of this is in a definite 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 money and some money simply becomes an end in itself which seems always a little bit perverse you just accumulate money and you have no idea what to do with it that seems for like a bit of a crazy thing to do but I think that's actually what what happens a great deal and so to illustrate one way

that this flow might happen if you you know start a successful business you know you sell the company or you sell shares to investors in an IPO you make some money question what do you do with the money you have no idea because nobody knows what to do with anything and so you give the money to a large bank to help you do something what does the bank do it has no idea so it gives the money to a portfolio of institutional investors what do the instance each institutional investor do they have no idea and

so they all just invest in a portfolio of stocks not too much in any single stock ever because that suggests you have opinions or you have ideas and that's very dangerous because it suggests that you're somehow not with it and then what do the companies do that get the money they've been told that all they should do is generate free cash flows because if they were to actually invest the money in specific things that would suggest the companies had ideas about the future and that would be very dangerous and so one of the worst things

you can ever have is a company that's uh that's not profitable in in in this indefinite world and sort of the the contrarian idea that I always like saying is that we always like investing in companies that are losing money we don't like investing in companies that are making money because the companies that are not profitable are actually the companies that have a lot of ideas about what to do with their money whereas a company that's massively profitable on some level is a company that's out of ideas and it's especially crazy in a world where

on where the interest rates are zero and you actually get paid less and less on the money and then of course the companies are profitable to generate cash flows the cash flows eventually go back to people and you sort of cycle and repeat and this is sort of this is the rough flow that happens in the world of indefinite optimism on the problem is you know it's somewhat of a you know this is a bit of an extreme picture but in effect it's a hermetically closed loop and at the end of the day no one's

doing anything real with the money it's completely abstracted and what ends up happening is there are fewer and fewer things you can do and and one of the one of the sort of financial ways to illustrate this is if you look at the real interest rates on a 10-year bonds in the US which is this is a measure of how much interest you earn on bonds - what the expected inflation rate is and it's basically been trending steadily downwards today it's at minus 0.6 percent so 10-year bonds are yielding about 2% the expected inflation for

the next decade is 2.6 percent so when you invest in bonds in real terms you're expecting to lose minus 0.6 percent a year for a decade and it shouldn't even be surprising because there's no one in the system who has any idea what to do with the money this has been sort of a consistent critique of the huge deficits the US is running people constantly are saying you know there's a point where the bond market is going to blow up and the interest rates will go higher and one of the really big mysteries is that

this has not happened for year after year and I think the the fundamental the fundamental reason this has not happened is that people actually have no idea what to do with the money the last big idea people had on what to do with money that was not sort of circular was to buy houses and to invest in housing and that was sort 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 ideas what to do with money

the interest rates the real interest rates are going steadily more negative and so there's some sense in which this system of indefinite optimism is on is gradually sort of running out there's a way in which um you know what the the natural drift is for something from finance to insurance I attend to all I'm not going to give my whole anti Warren Buffett lecture here but I think I think there's a way in which Buffett was prescient and ahead of the curve and basically we oriented most of his businesses towards insurance companies in disguise which

is sort of the world of indefinite pessimism and that's what what dominates in that sort of world and we can sort of see how this indeterminacy affects us in very very many different fields so if we look at politics in an indeterminate world the most important position in politics is the pollster and what do you do in politics nobody has a clue but what you do is you take a poll and and the polls tell you what to do they don't really tell you anything on a long-term basis but they sort of tell you incrementally

what you do at any any given time and and as we've tracked towards us more and more indeterminate world there's a way in which you know Paul taking has become more and more dominant and so the way we talk about political campaigns and elections is sort of how are people doing in the polls much more than what ideas they're talking it's sort of you know if Martin Luther King were here and said I have a dream about a future that's really different you know the question with how does that poll um it's a it would

never and and that's sort of the way we avoid this there obviously are cases where this goes very badly wrong my sort of Exhibit A and my apology to all the Palin fans and the audience here but but but you know people always say it's this incredible mystery why McCain picked Palin in 2008 I think it's not a mystery at all on the basic heuristic was that you you looked at all the Republican senators and governors in 2008 Republicans weren't very popular they're mostly running around 40% in the polls Palin was at 85 in Alaska

because when oil was $140 a barrel Alaska was like Kuwait everybody was getting huge checks from the government at state of Alaska she was pulling extremely well and so there was no question that you would go with the person who pulled the highest and so you went with you went with Palin even though perhaps it couldn't scale to the US as a whole because the US was not producing way more oil than it was consuming and so you know and then there's sort of our ways in which you know the 2012 re-election gets recast as

a contract contest between say nate silver and dick morris silver was a better poll taker and so he won rather than that obama had better ideas or the ideas resonated better or that's what people wanted to hear it's not the substantive way that we talk about politics um to talk about government more generally you know even though government spending is still about the same as it has been for the last 50 or 60 years as a percent of GDP more and more of it is shifted towards transfer payments which are of course a way of

saying that the government has no ideas and what to do with money it simply moves it to other people and people it's assumed that people have ideas but you don't have specific ideas of what to do there is a way in which you can see indeterminacy in literature sort of if you sort of take a some you know classic science fiction the 1960s Space Odyssey classic you know the text was updated automatically every hour one could spend entire lifetime doing nothing but X orbing the ever-changing flow of information from a new satellite so a specific

definite view of a radically different future which you know maps reasonably closely to today's internet Neuromancer 1984 the sky above the port was the color of television tuned to a dead Channel future is fundamentally static if you think of it in terms of philosophy there's sort of our different ways to to map these quadrants but I would say the optimistic indeterminate quadrant is fundamentally the quadrant of someone like Rawls or Nozick people only think of them as opposites but they're they're really both in the same category Nozick it's sort of the libertarian version you have

no idea what to do and therefore the individual is paramount Rawls you're an avail of ignorance you have no idea what society you will be born in and therefore social democracy is paramount you get two very different ideas but they both take their starting point from sort of complete indeterminacy about the state of the world the classic determinate one you could be on the left you could be on the right but it was there was some sort of sort of Marx Hegel all these people where there was you know even going back to bacon or

Locke there was some sort of definite way that things would would get better and you could sort of work towards a better future in one way or another and then of course you have the determinate pessimistic indeterminate pessimistic you think tend to be more classical ones the determinant pessimistic would be like Plato and Aristotle there's a definite way things happen even though there's sort of limits and you can't be too hopeful about technology you're really improving the state of the world in any fundamental way and then probably the classic version of indeterminate pessimism and I

think this is sort of the philosophical category that we're back in is sort of the epicurean Lucretia's view of the universe where there is nothing but atoms and the void the atoms randomly move throughout the void they run sometimes bump into each other stuff happens eventually they break apart things fall apart chance roads everything there's nothing specifically you can do that makes any sense everything event you know things sort of all go to pot marijuana farming might be a good thing to go into in this world but basically this is actually this is actually in

some ways become the dominant the dominant view and it ends up being sort of strangely stoic because there's really nothing you can do about these larger forces that that will ultimately buffett you in the the most you can hope to achieve the certain amount of equanimity and indifference about fundamental randomness and meaninglessness of the universe you know indeterminacy and death we think about the process of aging and death very differently from the way we used to sort of the classic early science version was that death was a specific problem to be solved there were specific

diseases to solve specific ways to conquer death on the contemporary way to think about it is fundamentally through the prism of insurance which is again sort of indeterminate more on the pessimistic side and the main thing we can do is the actuarial math you know what is the probability that you are going to die in a given year if you are that old so if you're 30 years old you have about a 1,000 chance of dying in the next year if you're 80 years old you have a 1 in 10 chance of dying in the

next year and and all we can do is sort of describe these these probabilities and I'm not saying that you know by the way that this probabilistic view has nothing to it I just want to sort of illustrate how it sort of dominates our thinking and so instead of trying to find a cure for death or a solution to the problem of aging the best we can hope to do is figure out better ways to calculate the probabilities better ways to give people cell people various life insurance policies and and thereby suggest the sort of

pseudo mastery of a process that's fundamentally random and indeterminate of course you know the basic problem is that eventually the luck runs out oops you see how this works so anyway um you know at some point your luck runs out and so I think I think this question of whether you know indeterminate optimism is possible in the long run is this is this core question and is something like this this frame that we've had where it's just one coin toss 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 it will probably land heads for the time being but you never think very far about the future is that actually an ultimately stable quadrant or not and so so you know if you want to sort of frame this as a general question it's you could say you know could an iterative process lead if not the best of all possible worlds at least to a world where there's a path of monotonic and potentially never-ending improvement that's sort of a the core idea of this of this world of indeterminate

or indefinite optimism on you know the paradigmatic Pro an indeterminate optimist example is Darwin in Darwin's theory of evolution where you know you basically over billions of years develop this proliferation of different life forms and that's sort of the that's the paradigmatic example that we apply to all these different fields and we think that things like that work now I do think there are some paradigmatic counter examples the one that I want to sort of highlight is the paradigmatic counter example of failed in determinism are is failed cities and and you can sort of you

can certainly give various examples there's you know Los Angeles which probably should have been the greatest city in the United States with you know fantastic weather and somehow you know everything gradually went wrong with the sprawl LA is still one of the better places in the world you know there's the example of South Paulo I was there for a day about a year ago it's about a 12 mile drive from the main downtown area to the airport it takes about 35 minutes if there's no traffic for hours if there's traffic on the nine lane highways

sort of take the helicopter at dusk which is sort of endless lines of red lit cars backed up bumper-to-bumper on it's sort of 30 million people living in enclaves of a quarter to half a million each and of course how Paulo is still you know vastly better than places like Mumbai or Lagos Nigeria or places like that and if you had to sort of give a single reason why the convergence theory of globalization is probably going to fail is that most cities in the developing world looks something like this and and they will not actually

be improved in any incremental step-by-step way sorry there's there's no actual incremental way to to improve something something like this and you know if you look at the populations most of the people the world at this point are are living in these sorts of places the the sort of policy debates we have at this point are things like economics versus environmentalism which we we describe as these radically different perspectives on the world but they're really just differing views of different indefinite futures as a sort of maybe economics can be a little bit more optimistic environmentalism

is a little bit more pessimistic I personally think that as long as that's the frame environmentalism will always win because indefinite you know optimism is unstable and the ecological critique of economic thinking is that is that the economist says we don't need to think about the environment because people will solve problems every step of the way and then the counter-argument is this this probably does not work but of course the the issue with both is that somehow you're subject to these these much much larger forces it's the market its nature they're fundamentally a sort of

random unknowable statistical and and you can't think about them coherently one way or another and of course this kind of approach is also sort of very endemic to the way people think about when they start businesses just to sort of segue back to that and what one sees most commonly are sort of this this methodology where you have no idea what you're doing but it should basically be a never-ending form of a be testing on Darwinistic a be testing might work if you have billions of years but in practice you tend to run out of

money well before then and the problem is that somehow the search space of all businesses is much bigger than the search space of great businesses so it's somehow the a/b testing I think generally is a somewhat too inefficient process and the sort of iteration process but you end up with this question you just end up on some very low-hanging hill where the iteration is going to do something that incrementally improves things at every step in time but you maybe you just end up you know in a slightly better part of an infinitely large slum or

something like that to use the failed city example there's a machine learning and there's sort of all these different ways where you do not think about the future it's most character strongly characterized I think in a way by the very short time horizons and I think one of the things that's true both on the startup side and that may be even more true on the side of people who invest in startups is that anything that takes longer than a year is considered unreal and fake because we can have no opinions about the future and so

everything has to be on a super short time horizon and and and we're sort of dominated by by people who do these kinds of things and there's a question you know how well how well does this actually work and this is this is this is the official religion that we have today and I'm not you know I'm I don't believe in the official religion on but I think you know I think I just want I want people just to at least be aware that is this is the religion that that it's all statistical it's all

luck driven and I do think the the most striking thing is that the most successful businesses in some ways don't quite seem to fit this pattern even though you know we we end up talking about it and so you know the you know the you know after the 2007 crash we have seen this return to technology but it was characterized by it was most characterized by businesses that had very definite ideas I think the the iconic one for for the last number of years at least till jobs passed away was Apple which was of course

very much the opposite of you know an indeterminate business Apple was one where there was a multi-year vision of the future that was sort of being executed against there are legitimate concerns whether it still has that vision now that jobs is is no longer there but that's really what what is going on and of course that's not really the way we typically talk about it we typically talk about it and we look at you know how mean Jobs was to all the employees and and so we you know they're people I know who are running

businesses and they sort of hand out they hound out hand out books describing how bad jobs was to his employees to make their employees feel better about themselves and and so and and I think the the real question you need to ask about something like Apple is you know why did the people put up with this bad behavior and I think it was because it was actually this very countervailing narrative of the future that in a determinate world you know one of the most important metrics is the robustness of the plan what I often call

the secret plan that you're working against on you know the the kinds of companies that we've looked at it founders spend over the years the ones that have done best and want been ones that have somehow tracked against this this very very long-term vision of the future and I think sort of the one the one closing thought I would have on this is that on the one most characteristic thing of companies with a plan is that they do not sell and it there often are times that you should sell businesses you know I started PayPal

there were reasons that we there were reasons that it was the right decision for us to sell the business when we did in 2002 to eBay but but I do think that the most successful businesses somehow have an idea of the future that's uh that's very different from the present it's not fully valued and and therefore there's there's no point at at which you you should sell I've told this anecdote before but the the most important moment in my mind in the history of Facebook occurred in July of 2006 the company had been around for

about two years at the time was still just a college site there may be eight or nine million people on the site the revenues were I think tracking to about thirty million no profits and we got we received an acquisition offer from Yahoo for a billion dollars and so we had the board meeting on Monday morning on in July 2006 or three of us on the board Zuckerberg myself Jim Brier and and you know full disclosure I think that both Breyer and myself on balance thought we probably should take the money and run but but

you know Zuckerberg started the meeting and first thing he said was well you know it's kind of a formality we have to have a quick board meeting shouldn't take more than 10 minutes you know we're obviously not going to sell here and then we say well you know which actually talked about this a little bit more you know a billion dollars is a lot of money and we in some ways we hashed the entire the entire discussion we had today here these are like you know you know you own like 25 percent the company there's

so much you could do with all the money you'd make well I don't really know what I do with the money I just start another social networking site but I kind of like the one I already have so why should I sell and it was in some way sort of an encapsulation of this of this entire of this entire discussion and of course some you know you never sort of know that the immediate aftermath was that there was you know an almost you know infinite number of not infinite but there was sort of a large

number of you know sort of stories about how you know how in the world could you have a CEO who was so crazy that he wouldn't sell the company who didn't know that you should take a billion dollars this is what you got when you had some who's twenty two years old when you didn't have any adults in the company on you know it probably you know it was just the worst decision anybody had ever made the best best rash you know I was a little bit worried about it we had you know the the

sort of Founders Fund ideology we had was that we should always back the CEO we should always back the founder and so we went we we just went with with that as a framework but I think sort of the one you know the one partial rationalization I was able to come up with for not taking the money was that I you know we looked at the history in Yahoo it there had been two other companies where they'd offered a billion dollars that had been turned down it was eBay and Google and and so I concluded

that give at least you could actually make a pseudo-scientific argument that that that every case was someone had been offered a billion dollars and had rejected it it had been the correct thing to do but I do think this is a but the you know the argument that Zuckerberg finally you know finally finally came came down on was that you know there were all these new things that we were going to build at Facebook and it was clear that Yahoo wasn't valuing any of the products that had not yet been released and he wanted to

have a chance to build those products and since he was pretty confident that Yahoo had and this is not anti Yahoo things I think would be true of almost all these companies that they had no definite idea about the future and therefore did not properly value things that did not yet exist they were therefore undervaluing undervaluing the business and I think this is sort of this is sort of the challenge all of us have is to to work towards the future that's not just static like a dead Channel on television but that's a that's a

definite future and that is a radically better future that can that can motivate and coordinate and inspire a number of people to change the world and to go to a world where we where where luck is something for us to overcome and to deal with as we as we go along the way but but not for something that becomes this absolute dominating force that that stops all thought thought before it even starts thank you very much and I'm not going to say best of luck thank you you