But the entrepreneur needs to remember that most contrarian ideas, which go against the wisdom of the crowd, are wrong, he said. "Most contrarian ideas are in fact bad. ... Give me an idea that's fundamentally true, but no one agrees with you," he told the 4,000 attendees of TieCon 2008 Friday.
TieCon is an annual gathering of aspiring technology entrepreneurs at the Santa Clara, Calif., Convention Center. Tie stands for The Indus Entrepreneur.
Paypal was based on such a contrary idea. It succeeded in creating an Internet-based payment system because it learned from the mistakes of several predecessors who tried to implement flawed systems. After the failure of five or six predecessors, it became conventional wisdom that an effort to create an Internet payment system was doomed. And even though its approached overcame previous mistakes, Paypal as a young company still had to fend off fraudsters who viewed a new payment system simply as a better way to steal money.
At the time it got established, PayPal had no direct competitors. Nor was it frontally assaulting established payments vendors, such as Visa, two conditions that greatly aided its success, said Thiel. Visa was positioned to do an Internet payments system right, but it was a credit card company created by 12 banks, which collectively "were tremendously slow moving.
"Go into a market where the incumbents move slowly and you can move fast. ... I happen to believe the benefits of competition are vastly overrated," he said.
After eBay acquired PayPal, Thiel went on to found Clarium Capital Management, a hedge fund, and Founders Fund, a venture capital fund that operates along principles that Thiel believes better aid the entrepreneurial startup. He makes a small investment early in a firm where he believes in the management. He leaves the management alone to pursue its goals without demanding a seat on the board and he creates a class of stock for the managers that they can sell without waiting for the company to go public or be acquired.
While most established venture capital firms tend to invest several million in a company in exchange for a say in hiring management and a seat on the board, Founders Fund may invest as little as a few hundred thousand dollars.
In 2004, as the prospects for early social networking site Friendster started to decline, Thiel invested $500,000 in a little known site called Facebook. That investment has grown in value by 50 times on paper, although Facebook hasn't gone public or been acquired to confirm its value.
"Friendster had grown fast , then started to fade. The consensus view was, social networking has no real value," recalled Thiel. He investigated the field himself, concluded Friendster couldn't get ease of use engineering right and "its failure was idiosyncratic," not a weakness in the ideas of social networking. His investment in Facebook followed.
Thiel said he regretted not investing years ago in alternative energy companies. At a time when oil was $60 a barrel, everyone in the oil industry believed the price couldn't go higher and would fall back, so oil companies and other energy companies refused to invest in alternatives. Thiel said he shouldn't have believed the conventional wisdom.
Thiel shared some of the secrets of his success during a kickoff keynote Friday for TieCon 2008, which continued Saturday. TIE is one of the Silicon Valley's largest mentoring organizations for entrepreneurs and startup management.