The Making of Prophetic Startup Ideas

Foreword

Engineers who go into business for the first time often build a massive product first, then ask “How should I start getting customers?” They’re then told by so-called experts “sorry, you should have started with the customer.” And yet most world changing ideas are started by engineers, and spend their infancy as toys without any customers. Google Search Engine, Tesla’s Robot and later, Electric Car, SpaceX’s Spacecrafts, MakerBot’s 3D printers and the Apple I computer were all started by engineers that were considered more geeky, out of touch with reality, and insane, rather than prophetic, during their ascent.

The startup mistake, of unconditionally insisting on "customers first”, is literally of biblical proportions. Noah’s Ark, the parable tells us, took more than 900 years to build, while he was looking for passengers the entire time. In retrospect, the bidding war that materialized between the passengers, who were shunning him earlier, was simply a byproduct of the catastrophic flood, foreshadowed from within and ignored by the rest of his world. Noah didn’t need passengers. He needed to be on the path of a massive flood.

The Deluge

The Deluge, by English romantic painter Martin John, 1834

The Internet, 1998

In the summer of 1988, when I was a school boy and my bombed birth-country signed a ceasefire with its aggressor, my father disappointed me with the news that the world was about to change. We stopped at the shattered windows of a toy shop that displayed a plastic robot I had been coveting for a year. “I know I promised you this robot if you had good grades after your first year, but I have a different prize in mind now. A different kind of future is coming.”

I had no earthly clue what he meant by taking me into Tehran’s very crowded grand bazaar, among merchants and workers. Post-war unemployment was at a peak. Our house was just confiscated by unpredictable revolutionaries, and he barely had an income. Then we stopped at a strange tent-like store, which I later learned was a black market. “You got one for me?” he asked, and money was exchanged. The man nodded and handed my father a box wrapped in newspaper. A few hours later we had arrived at home, and I finally opened my prize. In big letters, the box read “ATARI 2600”. It was a game console with joysticks. The robot was virtual, not plastic. He spent hours playing against me. And it was that summer that the future of computing replaced the fervent love of religion and country that a revolutionary educational system had elected as my guiding light.

A decade later in 1998, I had just arrived in Canada. We were just starting to throw away dial-up modems for broadband Internet, and everyone was acutely aware of a connected future. I was young and getting myself ready to study Computer Science in university without really knowing why. The only thing I knew was that my father had introduced this unstoppable force into my life, which even he couldn’t control when he wanted to; and the expression of every need, even social and emotional ones, had been transformed to be channeled through it. My generation didn’t have The Breakfast Club; it had ICQ; and it no longer swapped CDs in school; it had eBay.

Iranian-French-American immigrant Pierre Omidyar’s eBay, which IPO’ed in the first three years of the Internet, made its founder a billionaire in 1998. And much like my father’s effect on me, that IPO had a profound effect on the careers of many individuals who shape our world today.

A Ukrainian American immigrant and a graduate, Max Levchin, was one of the many citizens of the Internet of 1998 who was hacking together products only because they were toys made possible by a prophecy. He wasn’t looking for customers head-on; but rather fascinated by the future that the prophecy of the Internet would enable.

According to an interview by Jessica Livingston, founding partner of Y Combinator, Max spent a lot of time around the computer lab and was frustrated by the outdated plastic security-cards the staff used, for managing digital authentication into their lab computers. He predicted a social sea-change: what if someday we need to manage so many computers that we need a big bag of security-cards to access them? This is the sort of insanely toy-like problems that only engineers manage to take seriously. They never appear as if they’re valuable to customers (and therefore experts), but they’re worth contemplating, because they’re just on the cusp of the frontiers of possibility. Steve Wozniak had asked himself a similar question when he invented Apple I (the first Personal Computer) twenty years earlier. Not “what do customers want”, but rather “is it suddenly possible to build a computer that’s smaller than a room?”

Max became obsessed with managing the physical bag of digital keys. In those days, the closest thing to a portable computer was the Personal Digital Assistant (PDA) device, a concept much too early for its time. Max decided that the PDA was the perfect bag, into which to virtualize the plastic security keys. He set out to “confine” the unmanageable number of physical plastic keys into a single PDA device, and in that spirit, he named the startup company “Confinity Inc.” He co-founded it with Peter Thiel, a Hedge Fund manager at the time who was excited about the effect of the Internet on the future of security.

In that same year, yet another immigrant engineer -- one who had left South Africa, obtained his citizenship from Canada, and dropped out of Stanford University in California to pursue his entrepreneurial aspirations -- deeply felt the scent of the future that my father had sensed ten years earlier.

The South African immigrant, in 1998, was selling “city guides to the Internet land” with his brother. He’d become the Noah of his generation. His name was Elon Musk.

PayPal

I was socially struggling in the Canadian high school in 1999, so I knew how tough it was to be an immigrant. My grades were on a downward spiral because I barely spoke English; and 90% of my time was spent understanding the Internet rather than school textbooks. On an eventful day, the school invited a handful of ambassadors from various universities to toot their own horns. Most of them sounded prestigious, but only one sounded like “the future”. “University of Waterloo,” the lady ambassador said, “trains the technology leaders of tomorrow.” At the admission door, they looked at grades and mine were embarrassing. But there was a loophole: you could participate in a National Mathematics Contest and prove your distinction to get admitted; this was my proverbial “window” of opportunity. Time was running out.

Max Levchin and Peter Thiel ended up building the PDA Wallet for Security Cards. But they, also, were getting pretty low grades. Except for a few enthusiasts nobody wanted their product in 1999. What everybody seemed to love, instead, was the auctions on eBay. The Internet was pushing folks from all over the globe to box up and auction anything, from their most trivial possessions to (literally) their kidneys. The Internet wasn’t getting lab technicians to secure their plastic keys, but it was proliferating bidding and transactions at an incredible pace. Annoying eBay users were asking Confinity if it could help them secure their escrow while the item was shipping from the seller to the buyer. Peter and Max were shooing them off, insisting on waiting for the social flood of frustrated lab technicians, until one day suddenly it dawned on them: social change wasn’t coming; the Internet was! They pivoted from securing plastic digital keys on PDA wallets to securing I-Owe-You ("IOU") promise notes (and eventually cash) through a website. They named the new platform “PayPal”.

Elon Musk sold his “City Guide to the Internet” (“Zip2”) business to Compaq in 1999 and personally gained US $22 million from the $307 million sale. In March 1999, when I was participating in my National Mathematics Contest to make a bid for admission into University of Waterloo, Musk registered a new startup company called “X.com: an online financial services and e-mail payments company”. He placed himself in head-to-head competition with Max Levchin and Peter Thiel.

The Internet was now wreaking havoc on the planet, and especially Wall Street. The very voices who mocked the geeks earlier for having no understanding of the pulse of the market were now running after the train, afraid to be left behind. The valuation of anything remotely connected to the Internet was speculatively skyrocketing. Engineers were being offered million dollar salaries. Universities were deserted for the gold rush of Silicon Valley. And good and sound companies were being vacated for unsound companies that could afford to give bigger salaries.

The once-fearful were now greedy, despite their best judgement. The future had arrived. The storm was brewing before the flood. The ordinary folk, who once mocked Noah for building the Ark, were now lining up outside every ship and boat, and out-bidding each other on the price of a standing spot and a pot to piss in.

I left the Math National Contest with the first half answered correctly, and the second half of the exam paper left blank. “Better be part right than all wrong”, I thought. But I figured I’d never come close to admission in Waterloo. I graduated high school and shortly after, received a letter from the Contest’s office: “Congratulations. You’ve made it to the top percentile, with distinction.” I couldn’t believe my eyes. What the F#$@ just happened? How could I be in the top percentile in an entire country, when I left the exam half blank?

In year 2000, I was admitted to, and studying Computer Science in Canada's Waterloo. Elon Musk’s X.com company merged with Max Levchin and Peter Thiel’s PayPal startup. They collectively rebranded the whole thing as PayPal and started growing exponentially fast, even as the Dot Com bubble finally burst.

The dot com bust proved that the social storm around which Confinity was originally built wasn’t a lasting force. The love from speculating people collapsed, once it wasn’t humanly possible to sustain. But the Internet, even after the catastrophic flood that sank Wall Street, continued to grow exponentially. Anyone, including PayPal, whose genesis was rooted based on the exponential force of technology, had a chance in hell of survival. The WebVans of the world, whose genesis was built on the whims of social behavior, collapsed catastrophically.

And I, ignorant of all these disasters in a far away land called Silicon Valley, continued to follow the prophecy of this “different kind of future”, the arrival of which my father had foreshadowed.

Tesla and SpaceX

PayPal exponentially grew until 2001 and became the first private company that went public after 9/11. eBay, its inspiring force, acquired it after the IPO event, in 2002, for $1.5 Billion.

Max Levchin, who engineered most of the security and anti-fraud infrastructure of PayPal from its first day, left with $34 Million. He went on in his career to start or support the starting of several companies including Slide (acquired by Google), Yelp, Yahoo and Evernote. Politically he’s spearheading liberalization efforts around immigrant laws.

Peter Thiel, who left PayPal with a $55 Million stake, went on to write a $500K check to Mark Zuckerberg’s Facebook, its first outside investment, worth 10.2% of the company and a Board Seat. (The sale of Facebook a decade later made Thiel a billionaire). He went on to start Angel Investing and Venture Capitalist activities, including creating Founders Fund, a San Francisco based VC company. He started a fellowship program that awards $100K to 20 people under 20 years of age each year to quit college and create their own ventures. He lectures periodically in Stanford, and supports Libertarian and LGBT political causes.

Elon Musk, who was the last to enter the game at PayPal, ended up with the most, $165 Million, proving the following premise:

The prophetic builder of Arks needs to bet on the right flood rather than the love of passengers;

The prophetic startup founder does better to bet on the timing of technological change rather than market behavior.

And if that wasn’t enough, he continued to listen to the voice of the future within by starting two more companies that have prophetic qualities: Tesla Motors, which ushers in the flood of the Electric future over the mocking passengers riding on fossil fuels; and SpaceX, building the contemporary Noah’s Ark in form of re-useable Spacecrafts that will someday open the passenger bidding to Mars colonization.

And as for your author, who now lives in Musk’s California; he's still following the voice of the father within, climbing the foreshadowed waves of the technologically democratized future, one toy project at a time.

The god of social tendencies and revolution flirts and takes away, where the god of technology relentlessly delivers its prophecies on time.^[1]

...

Know thy deity, and stay on the path.

Notes:

1. 
   Most types of technological storm are already formulated as variants of the Moore's law . These include exponential growth over time in processing capacity (Cloud computing), cost of processing (Mobile computing), performance by power (Wearables), Hard disk density (Miniaturization), Network capacity (Video and soon Virtual Reality streaming), Pixels per Dollar (Quality of HD videos and soon 3D videos), "Wirth's Law", also attributed to Google's Larry Page and Microsoft's Bill Gates, which states that software bloat grows as fast as Moore's Law, offsetting it (Explains the disruption of Enterprise companies) and The Carlson Curve, predicting the exponential falling costs of genetic sequencing.