# I. Company Cultures

Everybody knows that company culture is important. But it’s hard to know 
exactly what makes for an ideal culture. There are obviously some things 
that work. Even though they didn’t necessarily look like a winning 
investment at the time, the early Microsoft team clearly got something 
right.

Then there are some things that don’t work so well. A cult is perhaps 
the paradigmatic version of a culture that doesn’t work. Cults are crazy 
and idealistic in a bad way. Cult members all tend to be fanatically 
wrong about something big.

And then there is what might be called anti-culture, where you really 
don’t even have a culture at all. Consulting firms are the classic 
example here. Unfortunately, this is probably the dominant paradigm for 
companies. Most of the time, they don’t even get to the point of having 
culture. People are mercenaries. People are nihilistic.

Picture a 1-dimensional axis from consultant-nihilism to cultish 
dogmatism. You want to be somewhere in the middle of that spectrum. To 
the extent you gravitate towards an extreme, you probably want to be 
closer to being a cult than being an army of consultants.

Good company culture is more nuanced than simple homogeneity or 
heterogeneity. On the homogeneity side, everyone being alike isn’t 
enough. A robust company culture is one in which people have something 
in common that distinguishes them quite sharply from rest of the world. 
If everybody likes ice cream, that probably doesn’t matter. If the core 
people share a relevant and unique philosophy about something important, 
you’re onto something.

Similarly, differences qua differences don’t matter much. In strong 
company cultures, people are different in a way that goes to the core 
mission. Suppose one key person is on an ice cream only diet. That’s 
quirky. But it’s also irrelevant. You want your people to be different 
in a way that gives the company a strong sense of identity and yet still 
dovetails with the overall mission. Having different kinds of 
problem-solvers on a team, for example, can make for a stronger culture.

# II. Zero Sum vs. Not

## A. To Fight or Not To Fight

Generally speaking, capitalism and competition are better seen as 
antonyms than as synonyms. To compete isn’t what you should set out to 
do. That doesn’t mean you should slack off. To succeed you probably need 
to work intensely. But you should work on something that others aren’t 
doing. That is, focus on an area that’s not zero-sum.

Sometimes, though, you need to compete. Monopoly is the theoretical 
ideal that you should always pursue. But you won’t always find some 
non-competitive, cornucopian world. You may well find yourself in 
competitive, zero-sum situations. You must be prepared to handle that 
competition.

Gandhi is a great historical figure. He had many virtues. But he 
probably would not have been a great startup advisor. Consider the 
following quote:

  “If [Hitler and Mussolini] choose to occupy your homes, you will 
  vacate them. If they do not give you free passage out, you will allow
  yourselves, man, woman, and child, to be slaughtered, but you will
  refuse to owe allegiance to them.”

Basically, the message is that you should demonstrate your superiority 
by allowing yourself to be slaughtered. Do not follow that advice while 
starting companies. You should try to avoid fighting, but where you 
must, you should fight and win.

## B. Creators or Fighters?

In thinking about building good company culture, it may be helpful to 
dichotomize two extreme personality types: nerds and athletes. Engineers 
and STEM people tend to be highly intelligent, good at problem solving, 
and naturally non zero-sum. Athletes tend to be highly motivated 
fighters; you only win if the other guy loses. Sports can be seen as 
classically competitive, antagonistic, zero-sum training. Sometimes, 
with martial arts and such, the sport is literally fighting.

Even assuming everyone is technically competent, the problem with 
company made up of nothing but athletes is that it will be biased 
towards competing. Athletes like competition because, historically, 
they’ve been good at it. So they’ll identify areas where there is tons 
of competition and jump into the fray.

The problem with company made up of nothing but nerds is that it will 
ignore the fact that there may be situations where you have to fight. So 
when those situations arise, the nerds will be crushed by their own 
naiveté.

So you have to strike the right balance between nerds and athletes. 
Neither extreme is optimal. Consider a 2 x 2 matrix. On the y-axis you 
have zero-sum people and non zero-sum people. On the x-axis you have 
warring, competitive environments (think Indian food joints on Castro 
Street or art galleries in Palo Alto) and then you have peaceful, 
monopoly/capitalist environments.

Most startups are run by non-zero sum people. They believe world is 
cornucopian. That’s good. But even these people tend to pick 
competitive, warring fields because they don’t know any better. So they 
get slaughtered. The nerds just don’t realize that they’ve decided to 
fight a war until it’s all over.

The optimal spot on the matrix is monopoly capitalism with some tailored 
combination of zero-sum and non zero-sum oriented people. You want to 
pick an environment where you don’t have to fight. But you should bring 
along some good fighters to protect your non zero-sum people and 
mission, just in case.

## C. Investor Heuristics

Founders Fund is a picky VC firm. There are many different types of 
companies that it doesn’t like. The partners have developed maybe 20 or 
so different dogmas, each taking the form “Never invest in x.” The “x” 
might be mobile internet, cleanteach, etc. Sometimes it seems like there 
are so many dogmas that it’s impossible to invest in anything anymore.

But always up for contrarian thinking, awhile back they made up a new 
strategy: identify and invest in the best company in or for every 
particular dogma. It’s been more useful as a thought experiment than an 
actual strategy. But it led them to look at an interesting cleantech 
company they would’ve ordinarily skipped over. Though the space is 
extremely competitive and no one ever really makes any money, this 
particular company seemed reasonably good. It was run by scientists. It 
had great engineers and great technology. Everybody was passionate and 
committed to the mission. Talks of term sheets were in the air.

But then the cap table surfaced. It turned out that the founders and 
employees owned about 20% of the company. Other VC firms owned 80%. At 
the time, the company had a $35m valuation, so it was still early stage. 
The equity breakdown seemed more like a mistake than a red flag. Many 
versions of the “what the hell happened?!” question were asked. The 
founders’ response was nonchalant: “We are so committed to making the 
technology work that we didn’t care about the equity.” That may be a 
very noble. But it’s also pretty bad. The subquestions it raised killed 
the deal: with such passivity, what are you going to do about your 
competitors? Can you even build a sales team? If you got run over so 
hard by investors, how are you going to fare against the entire world?

# III. A Conversation with Stephen Cohen and Max Levchin

Peter Thiel: You guys have started companies. You’ve seen what’s worked 
and what hasn’t. Talk for a few minutes each. How do you build culture?

Stephen Cohen: Palantir makes analysis platforms aimed at governmental 
clients. But the founders knew from the outset that they ultimately 
wanted to make products for enterprise generally as well. Since that 
would take a long time to pull off, they knew that they needed really 
brilliant people working together under a shared long-term perspective. 
They knew that hiring tightly and wisely would be crucial from day one.

That early understanding reflected the three salient properties that 
inhere in good company culture. First, a company must have very talented 
people. Second, they must have a long-term time orientation. Third, 
there must what might be called a generative spirit, where people are 
constantly creating. With this framework, hiring is more understandable: 
you just find people who have or contribute to all three properties. 
Culture is the super-structure to choose and channel people’s energies 
in the right direction.

One error people make is assuming that culture creates these three 
aspects. Take a look at the Netflix company culture slides, for 
instance. They seem to indicate that you can produce talent from 
non-talent, or that you can take someone focused on the now and somehow 
transform them into long-term thinking. But you can’t. Culture can 
always do more harm than good. It can reflect and enhance these three 
properties. It cannot create them.

From that insight comes the conclusion that hiring is absolutely 
critical. People you don’t hire matter more than people you do hire. You 
might think that bad hiring decisions won’t matter that much, since you 
can just fire the bad people. But Stalin-esque meritocracy sucks. Yes, 
you can shoot the bad people in the back of the head. But the problem 
with that is that you’re still shooting people in the back of the head.

Peter Thiel: One early goal at PayPal was never to fire anybody. The 
founders just hired their friends since they could trust them. But 
eventually they had to hire more and more people who they knew less and 
less. They hired a sys admin from outside their network. It was trouble 
from the beginning; the guy showed up at 6pm on his first day of work. 
Worse than his tardiness was his lack of hygiene. The near-immediate 
objections people had were silenced by the founding rule: never fire 
anybody. A couple of months later, PayPal’s systems crashed. The squalid 
sys admin hadn’t made any backups. For a moment it looked like PayPal 
was done for. Luckily, some engineer went outside his job description 
and had decided to secretly back up everything everyday. Order was 
restored and the sys admin was fired. The “no-fire” rule still reflects 
a good orientation: firing people is like war, and war is bad, so you 
should try not to do it. But the flipside is that if you wait until it’s 
obvious to everyone that someone should be fired, it’s far too late.

Max Levchin: The notion that diversity in an early team is important or 
good is completely wrong. You should try to make the early team as 
non-diverse as possible. There are a few reasons for this. The most 
salient is that, as a startup, you’re underfunded and undermanned. It’s 
a big disadvantage; not only are you probably getting into trouble, but 
you don’t even know what trouble that may be. Speed is your only weapon. 
All you have is speed.

So how do you move fast? If you’re alone, you just work really hard and 
hope it’s enough. Since it often isn’t, people form teams. But in a 
team, an n-squared communications problem emerges. In a five-person 
team, there are something like 25 pairwise relationships to manage and 
communications to maintain. The more diverse the early group, the harder 
it is for people to find common ground.

The early PayPal team was four people from the University of Illinois 
and two from Stanford. There was the obligatory Russian Jew, an Asian 
kid, and a bunch of white guys. None of that mattered. What mattered was 
that they were not diverse in any important way. Quite the contrary: 
They were all nerds. They went to good schools. (The Illinois guys had 
done the exact same CS curriculum.) They read sci-fi. And they knew how 
to build stuff. Interesting to note is that they did not know how to 
build stuff the right way. It turned out that scaling up would be very 
challenging for PayPal because the 26 year-olds who were managing 
hundreds of thousands of credit cards didn’t make all the optimal 
choices from the beginning. But there was great clarity in the early 
communications. There was no debate on how to build that first database. 
And that alone made it possible to build it.

Striving for optimality early on—debating pros and cons of various 
design decisions in intricate detail—would have doomed PayPal. When 
systems problems finally caught up to them, their communication was so 
good that they were able to fix them reasonably quickly. They kept 
hiring people from Illinois and Stanford. They focused on their network. 
And things worked out. But only because of a lack of diversity.

PayPal once rejected a candidate who aced all the engineering tests 
because for fun, the guy said that he liked to play hoops. That single 
sentence lost him the job. No PayPal people would ever have used the 
world “hoops.” Probably no one even knew how to play “hoops.” Basketball 
would be bad enough. But “hoops?” That guy clearly wouldn’t have fit in. 
He’d have had to explain to the team why he was going to go play hoops 
on a Thursday night. And no one would have understood him.

PayPal also had a hard time hiring women. An outsider might think that 
the PayPal guys bought into the stereotype that women don’t do CS. But 
that’s not true at all. The truth is that PayPal had trouble hiring 
women because PayPal was just a bunch of nerds! They never talked to 
women. So how were they supposed to interact with and hire them?

One good hiring maxim is: whenever there’s any doubt, there’s no doubt. 
It’s a good heuristic. More often than not, any doubt precluded a hire. 
But once this very impressive woman came to interview. There were some 
doubts, since she seemed reluctant to solve a coding problem. But her 
talk and demeanor—she insisted on being interviewed over a ping-pong 
game, for instance—indicated that she’d fit into the ubernerd, ubercoder 
culture. She turned out to be reasonably good at ping-pong. Doubts were 
suppressed. That was a mistake. She turned out to not know how to code. 
She was a competent manager but a cultural outsider. PayPal was a place 
where the younger engineers could and would sometimes wrestle with each 
other on the floor to solve disputes! If you didn’t get the odd mix of 
nerdiness + alpha maleness, you just stuck out.

Stephen Cohen: Good stuff shows itself. Talent shows itself. It doesn’t 
talk about itself. You must develop a sort of spidey sense to look out 
for it. Watch what people show you instead of listening to what they’re 
telling you. Seize on any doubt you find. It’s never personal. Never let 
the interview process become personal. But things get personal if you 
just listen to the other person. Don’t ask yourself what you think about 
what the candidate is saying. Just imagine the person you’re 
interviewing at work. Imagine them in a situation they’d be in if you 
were to hire them. How does that look?

Screening out personal biases is a must. A lot of programmers are 
dogmatic about syntax. Things have got to be laid out this particular 
way. Maybe they don’t like using factoring methods or something. But 
that’s a personal bias. It has nothing to do with being a good engineer. 
So those are the wrong questions to focus on. The right question is how 
badass they are. Smooth appearances are irrelevant to being good. The 
most talented folks are almost always quirky. Watch for the quirks and 
embrace them. Nothing is stranger than watching a quirky entrepreneur 
harshly criticize another quirky entrepreneur for being too quirky.

A specific application of this is the anti-fashion bias. You shouldn’t 
judge people by the stylishness of their clothing; quality people often 
do not have quality clothing. Which leads to a general observation: 
Great engineers don’t wear designer jeans. So if you’re interviewing an 
engineer, look at his jeans. There are always exceptions, of course. But 
it’s a surprisingly good heuristic.

Max Levchin: The management team at PayPal was very frequently 
incompatible. Management meetings were not harmonious. Board meetings 
were even worse. They were certainly productive meetings. Decisions were 
made and things got done. But people got called idiots if they deserved 
it.

The next time around, at Slide, we tried to create a nicer environment. 
The idea of having meetings where people really liked one another seemed 
great. That was folly. The mistake was to conflate anger with a lack of 
respect. People who are smart and energetic are often angry. Not at each 
other, usually. Rather, they’re angry that we’re “not there yet,” i.e. 
that they have to solve x when they should be working on some greater 
problem y. Disharmony at PayPal was actually a side effect of very 
healthy dynamics.

If people complain about people behind each other’s backs, you have a 
problem. If people don’t trust each other to do good work, you have a 
problem. But if people know that their teammates are going to deliver, 
you’re good. Even if they are all calling each other idiots.

The danger is that you get soft. It’s hard not to get soft as you train 
niceties. Pretty soon you spend more time thinking about how nice 
everyone is than you do about how qualified they are. That is death. If 
you think that an A- or B++++ person becomes an A person if they have a 
good personality, you are an idiot. The rest of the organization has 
already figured out that you’re just being soft. They won’t respect the 
non-A player. And they certainly won’t respect you.

Even though people would physically fight on the engineering room floor, 
if you ever asked PayPal people if they respected each other, the answer 
was obvious. For a very long time, everyone believed in everyone else. 
That was not true at Slide. There, the subtle passive-aggressive lack of 
respect was allowed to develop too long. It proved very costly. At some 
point, there had to be a relatively significant bloodletting. It was 
stressful. The victims of the purge were so nice. It was easy to like 
them. It felt like a very bad, mean thing to do.  But it was a good 
decision. Subsequently the company was run and performed much better. 
Yes, the love dissipated. But you knew that whatever remained was rooted 
in respect.

Peter Thiel: It is incredibly important to surface issues quickly. 
Ideally everyone in an organization is rowing in same direction. Ideally 
there’s a strong, shared vision of the company’s future. But at the 
micro level, details matter a lot. People will disagree about them 
often. When that happens, it simply must surface. Concealing 
disagreements because people feel uncomfortable makes for disaster. It 
doesn’t fix things. They just sit undealt with, doing damage.  Even in 
best of startups, a lot of chaotic things happen. If disagreements 
aren’t surfacing, it’s not because there are none. Key things are being 
covered up. Everyone moving together in lockstep is a big red flag, not 
an ideal.

The standard view is that companies get destroyed by external 
competition. Maybe that’s true in the long run. But in the short run—and 
most that fail fail in the short run—they get destroyed internally. Even 
the best companies have ups and downs. If destructive relationships 
unravel and wreck havoc during a down, the whole ship can blow up. 
Companies are not simple unitary entities in larger competitive 
ecosystems. They are complex entities with complex dynamics. Usually 
those dynamics blow up before some predator from the wider ecosystem 
strikes.

Stephen Cohen: You need to avoid people who are likely to blow things 
up. One key question to ask is: how does this person see themselves? One 
trendy answer that people seem to have is: I see myself as Steve jobs. 
Absent context, someone seeing himself as the next Steve Jobs is neither 
bad nor good. It just is. But in context, it might be a disaster. If you 
have a team of 10 people trying to build product consensus, imagine what 
happens if all of them are Steve Jobs. It’d be a nightmare. At best 
you’d have nine pissed off people and one very insecure guy who got his 
way.

It’s often telling to ask someone why they made the major decisions they 
did in the past. You can tell if they’ve processed the emotions behind 
those decisions. Someone who gets flustered or can’t explain a job 
change may be carrying a lot of baggage. Someone who doesn’t take 
responsibility for past moves will probably not change course and take 
responsibility in the future.

Max Levchin: Another good interviewing heuristic is to be very wary of 
salary negotiators. That you should run away from anyone who just wants 
salary instead of equity is entirely obvious. There is some nuance here, 
since a lot of people got burned on options during that last boom/bust 
cycle. But generally you want people to want stock. The best hires don’t 
seem to care too much about money at all. They might ask whether a 
certain salary is market or not. That is reasonable; no one wants to get 
screwed. But you want people to care far more about equity. And best 
hires aren’t wooed by an offer of a large number of shares. The best 
hires say “That’s the numerator. What’s the denominator?” The best 
people are the ones who care to ask: How much of the company is mine?

Some companies are sales-driven. You need to hire good salespeople. But 
that’s hard to do, since those people are trained to sell. When they 
walk in the door, you’re getting overwhelmed by phenomenal sales skills.  
It’s hard to know what’s real and what’s not. So what should you do? The 
same thing people do for engineers: give them technical questions. Break 
them. Watch what happens when they break. You’ll use lateral-thinking 
problems instead of algorithms questions, of course. But good sales 
people are just as smart as engineers, so you shouldn’t give them a free 
pass. You need to build a team that has a lot of raw intelligence. So 
never slack on interviewing intensity just because the job isn’t a 
technical one.

Peter Thiel: A good thing to do when hire sales people is to see how 
much they’ve sold in the past. But you have to apply some sort of 
discount rate because they don’t always tell the exact truth. Scott 
Bannister of IronPort just asked sales people to submit their W-2s. 
Those with proclivity for exaggerating couldn’t stump simple test of how 
much they’d made in commissions in the past. 

Question from audience: Suppose you found a great engineer that’s a good 
cultural fit. They are in high demand. How do make a compensation 
package that ensures you get that person?

Stephen Cohen: There’s a crazy phenomenon with engineers. There is 
probably some sum of money you could pay to any engineer to work at 
Palantir and give it their all for one year. But there is no sum of 
money that you could pay any engineer to go all-out for ten years. 
Humans can’t muster that amount of sustained focus and energy if they 
don’t love what they’re doing.  The folks who fall in love aren’t asking 
details about salary, trying to extract every penny. The ones who fall 
in love are just running. So insofar as money is an issue, you should 
get at exactly why. What does some particular compensation detail mean 
to the person?

Question: What if engineers are in love with something else, but you 
think they’d fall in love with your company if they were to join you?

Stephen Cohen: Reframe that question in a marriage context. Don’t you 
think that would make for a higher than normal rate of divorce?

Peter Thiel: One thing that’s undervalued in the engineering world is 
over how long a term most of the value is built.  When eBay bought 
PayPal, all the PayPal engineers left. eBay had to hire them all back as 
consultants at something like 3x their old salaries because it couldn’t 
manage the codebase without them. The engineers had acquired a 
tremendous amount of knowledge of PayPal’s systems. Even really smart 
engineers couldn’t replace them. So it’s worth targeting people who will 
be around a long time.

The surest way to blow up a company is with a nuclear bomb: send out an 
e-mail to everybody that lists what each person is getting paid. You 
should not actually try this experiment. But it’s worth doing it as a 
thought experiment. People will always be upset when they see what 
others are getting paid. That’s a given. But how upset will they be? 
Will they be extremely upset? Would that be justified? Or could they be 
persuaded that things are quite reasonable?

Engineering compensation is difficult right now. You’re competing with 
Google’s prestige and money. The first step is to avoid competing on 
purely financial terms, where you’re likely to lose. You have to have 
that compelling monopoly narrative that we discussed last week.

Max Levchin: Engineers are very cynical people. They’re trained to be. 
And they can afford to be, given the large number of companies that are 
trying to recruit them in Silicon Valley right now. Since engineers 
think any new idea is dumb, they will tend to think that your new idea 
is dumb. They get paid a lot at Google doing some pretty cool stuff. Why 
stop indexing the world to go do your dumb thing?

So the way to compete against the giants is not with money. Google will 
outbid you. They have oil derrick that spits out $30bn in search revenue 
every year. To win, you need to tell a story about cogs. At Google, 
you’re a cog. Whereas with me, you’re an instrumental piece of this 
great thing that we’ll build together. Articulate the vision. Don’t even 
try to pay well. Meet people’s cash flow needs. Pay them so they can 
cover their rent and go out every once in awhile. It’s not about cash. 
It’s about breaking through the wall of cynicism. It’s about making 1% 
of this new thing way more exciting than a couple hundred grand and a 
cubicle at Google.

Stephen Cohen: We tend to massively underestimate the compounding 
returns of intelligence. As humans, we need to solve big problems. If 
you graduate Stanford at 22 and Google recruits you, you’ll work a 
9-to-5. It’s probably more like an 11-to-3 in terms of hard work. 
They’ll pay well. It’s relaxing. But what they are actually doing is 
paying you to accept a much lower intellectual growth rate. When you 
recognize that intelligence is compounding, the cost of that missing 
long-term compounding is enormous. They’re not giving you the best 
opportunity of your life. Then a scary thing can happen: You might 
realize one day that you’ve lost your competitive edge. You won’t be the 
best anymore. You won’t be able to fall in love with new stuff. Things 
are cushy where you are. You get complacent and stall. So, run your 
prospective engineering hires through that narrative. Then show them the 
alternative: working at your startup.

Question: How does one preserve diversity of opinions in a startup?

Max Levchin: Sometimes diversity of opinion is valuable. Sometimes it’s 
not. Some stuff needs to be off limits. There is some set of things that 
the founding team should decree is stupid to argue about. PayPal chose 
C++ early on. It’s kind of crappy language. There’s plenty to complain 
about. But the founding engineers never argued about it. Anyone that did 
want to argue about it wouldn’t have fit in. Arguing would have impeded 
progress.

But arguing about smart marketing moves or different approaches to 
solving tactical or strategic problems is fundamental. These are the 
decisions that actually matter. Avoid groupthink in these areas is key. 
A good rule of thumb is that diversity of opinion is essential anytime 
you don’t know anything about something important. But if there’s a 
strong sense of what’s right already, don’t argue about it.

Peter Thiel: The relevant Keynes line here is “When the facts change, I 
change my mind. What do you do?” But you actually don’t want to let 
every new fact call what you’re doing into question. You’re searching 
for a great business. What does that search space look like? Is it broad 
but shallow? Are you looking at every possible business you could do? Or 
-are you focused on one area and drilling down on that?

The super broad, horizontal search is perhaps okay when you’re thinking 
about starting a company initially. But returning to it at later stages 
is counterproductive. An internet company talking about being a 
cleantech company is lost. People tend to overrate the value of 
horizontal search and underestimate the sheer size of the search space. 
Far better is to understand how to do vertical search and to value depth 
over breadth.