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admin / March 2, 2015

Peter Thiel, Tony Hsieh And The Restaurant Problem

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Published in Forbes

I came to learn of Peter Thiel’s dislike of restaurants while attending the Thiel Summit in Las Vegas. The cutthroat restaurant biz, Thiel explained during opening remarks, means margins are thin, wages are low, growth is slow and investment in innovation is difficult to recoup. His point: entrepreneurship should not be thought of as meeting competition. It is about seeking an unassailable position; monopoly.

The summit concluded with a presentation by Zappos founder Tony Hsieh who, unlike Thiel, turned out to be very interested in restaurants. After moving his business from San Francisco to Las Vegas, Hsieh found the city’s downtown area, beyond the casino glow, grim and blighted. Determined to turn it around, Hsieh began an investment fund to incubate local businesses — many of which were restaurants.

Having grown up in the suburbs, where summer is characterized by the lonely click of air conditioners, I understand the appeal of Hsieh’s vision. Vital local establishments encourage community. A chance encounter with the owner of a local used bookstore, for example, not only makes my neighborhood a great place to live but may lead me to an important discovery. Breakthroughs tend to be stumbled upon. In fact, Hsieh argues random “collisions” are value-generating for businesses. Apparent inefficiencies, such as chit chat in the hallway, are often how things get done. This, however, is only the beginning.

Decentralization, enabled by the web, is the reason why Hsieh can operate out of Las Vegas in the first place. Downtown restaurants, far from the Las Vegas strip, are now patronized by remote workers. A resurgent downtown lifts real estate values and ultimately attracts talent to Zappos. If, according to Thiel, restaurants do not make good investments, it’s because he is looking for a different kind of return.

Thiel’s example, of course, was only meant to make a limited point about the nature of monopoly. Yet, Thiel’s and Hsieh’s remarks frame very different ideas regarding where prosperity comes from. One perspective, angling for a unique, solitary position, is individualistic. The other emphasizes community.

At first, I found it surprising that the summit would be framed by apparently contradictory views. The Thiel Foundation, which encourages the best and brightest not to go to college, has had its detractors. I was concerned that there might be strong ideological overtones. Instead, I found attendees maintained diverse opinions — that’s the paradox of cultivating individualism.

I was invited to participate in a presentation as a Collaboration Quests partner regarding bringing Internet access to rural Africa. Surprisingly, a young Nigerian entrepreneur was in attendance. She raised concerns about tribalism here and there. Can it be avoided? Probably not. We aren’t drawn to ideas just because they are true. In a sense, judgement is often aesthetic. We are seduced, compelled to belong; to join thinking that seems correct or successful. Data is rarely conclusive.

Walking back to the hotel, I watched the Las Vegas strip emerge from twilight. The city, which combines transgression with family entertainment, makes the restaurant problem seem academic. Whether Hsieh or Thiel are right, or even in disagreement at all, is an old argument. We negotiate between the individual and the community all the time. One will never account for the other. Entrepreneurs, however, aren’t just speculating on the nature of reality, they’re building it.

That’s why, in the end, the question is not just what works, but what one wants. The answer to the restaurant problem is not whether the individual or community comes first. As an entrepreneur, you must consider the question itself. What kind of world do you want to live in? When you know that, the restaurant problem answers itself.