Through Peter Thiel's CS183: Startup class at Stanford University, we have a unique window into the mind of the venture capitalist and hedge fund manager. He's fascinated with human nature, and integrates what he learned from his former career as a chess master into his lectures.
Chess is a contained universe: there are only 32 pieces on the board and 64 squares those pieces can occupy. But starting up a company takes much more than raw intellectual ability; it requires what Thiel calls "The Mechanics of Mafia," or the understanding of complex human dynamics. Linking the two worlds is Thiel's passion. Here are some of the chess concepts he highlighted in his class, thanks to notes from one of his former students, Blake Masters:
Know the relative value of your pieces.
In chess, the queen is the most valuable piece on the board. In the standard valuation system, it is given a 9, whereas the rook (5), bishop (3), knight (3), and pawn (1) are lower. In his lecture Value Systems, Thiel mentions Guy Kawasaki’s equation on how to assess the value of a company based on the types of people you have:
Pre-money valuation = ($1M x Number of Engineers) – ($500k x Number of MBAs).
So engineers are more valuable pieces than MBAs.
From his lecture If You Build It, Will They Come? Thiel points out that within any group, there is a wide range of talent. This goes for engineering as much as it goes for sales. “Engineering is transparent … It is fairly easy to evaluate how good someone is. Are they a good coder? An ubercoder? Things are different with sales. Sales isn’t very transparent at all. We are tempted to lump all salespeople in with vacuum cleaner salesmen, but really there is a whole set of gradations. There are amateurs, mediocrities, experts, masters, and even grandmasters.”
“But if you don’t believe that sales grandmasters exist, you haven’t met Elon [Musk]. He managed to get $500m in government grants for building rockets, which is SpaceX, and also for building electric cars, which is done by his other company, Tesla.”
The take-away lesson: Just like with chess pieces, people are not of equal value when it comes to your organization. You must be able to accurately assess their value. And within any field there are amateurs, mediocrities, experts, masters, and grandmasters.
Know how your pieces work best together.
In his lecture The Mechanics of Mafia Thiel discusses two 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.” A company made up of only athletes will be biased toward competing. A company made up of only nerds will ignore the situations where you have to fight. “So you have to strike the right balance between nerds and athletes.”
The take-away lesson: You need some athletes to protect your nerds when it’s time to fight.
Know the phases of the game and have a plan.
In chess, there are three phases: the opening, the middle game and the end game.
From his lecture Value Systems Thiel notes: “People often talk about ‘first mover advantage.’ But focusing on that may be problematic; you might move first then fade away. The danger there is that you simply aren’t around to succeed, even if you do end up creating value. More important than being the first mover is the last mover. You have to be durable. In this one particular at least, business is like chess. Grandmaster Jose Raul Capablanca put it very well: to succeed ‘you must study the endgame before anything else.’”
From his lecture War and Peace: “A good intermediate lesson in chess is that even a bad plan is better than no plan at all. Having no plan is chaotic. And yet people default to no plan.”
Take away lesson: Moving first isn’t always an advantage. Think about poker. If you’re the last to bet, you have the most information. The endgame is where the most decisive moves are made. Study it and make sure you’re around at the right time to make your move. Have a plan.
Talent matters; there is more to success than luck.
In chess, talent clearly matters. In business and life, both talent and luck matter.
From his lecture You Are Not A Lottery Ticket, Thiel said that “when we know that someone successful is skilled, we tend to discount that or not talk about it. There’s always a large role for luck. No one is allowed to show how he actually controlled everything.”
In his lecture If You Build It, Will They Come? Thiel explained that "since the best people tend to make the best companies, the founders or one or two key senior people at any multimillion-dollar company should probably spend between 25 percent and 33 percent of their time identifying and attracting talent.”
Take away lesson: Some people hold more value and control more resources than you realize. Invest your time in finding those talented people for your organization.
Chess is a brutal mental game. So is life. Make your moves carefully.
According to chess grandmaster Danny King's interview with 60 Minutes, “Chess is a really brutal game. I think because it’s so contained. It’s all going on in the head. And if you lose to your opponent, you feel stupid. You can call someone all the names under the sun, but if you call someone stupid, that’s the worst thing you can say to another human being. And that’s a bit what it feels like when you lose a game of chess. It’s all intellectual.”
Take away lesson: In the words of King: “You can’t take your moves back. Once you play your move you could be stepping into some horrible trap.”
© 2012 by Jonathan Wai
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This article originally appeared on Business Insider.