Peter Thiel (in a YouTube conversation) categorizes company innovation into three modalities—viral/fast-distribution products, iterative/technological improvements, and a less-recognized third category he calls "complex coordination." He argues complex coordination (assembling many existing components, supply chains, distribution, and ecosystems into a cohesive whole) is undervalued and gives examples like Apple/iPhone, Tesla, and SpaceX to show why it creates hard-to-replicate advantages.
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Let me try to give one category of a company that I think gets underestimated. So we're always, you know, the question we always focus on is, you know, can this be a monopoly? Can this become a monopoly? And so, you know, what makes a company a monopoly? So it could be that you have super fast distribution on a very thin product. This would be like Twitter or a lot of the sort of super fast viral Pinterest, Twitter sort of fits that you can have something where there's sort of a technological advantage that you have and then you sort of gradually build on. This is the way we often think of innovation. You come with something new and then you iterate and steadily improve. And this is like a lot of enterprise software, a lot of SaaS software. You come up with a new product, you keep improving it, you get it out. Occasionally you have things where there's a really brilliant breakthrough. So this is like Bitcoin, that's actually a much less common modality. So most of it's always iterative improvement. Occasionally it's brilliant breakthroughs. But a third, a different kind of modality for innovation that I think we do very little and we don't even recognize as an important category is what I would describe as complex coordination where you take a lot of different pieces and the challenge is to get coordinate them into something new. This is the thing that's maybe 180 degrees antithetical to the lean startup ethos. So it's complicated. You have to get all the pieces together in just the right way. And I think this was on some level, this was on some level what really drove Apple as an innovation, as an innovative company in the last decade. When you have the biographies written on Jobs, it's always like, he was like a real mean person and it sort of yelled at people a lot. This is sort of roughly the level on which we understand what happened. But it was, you have to at least beg the question, why was it inspiring? And it was inspiring because there was this coordination where you build. And so if you ask what was new about the iPhone, there was no single component that was new. It was just, you pulled all these things together in just the right way, including the whole super complicated manufacturing supply line. And once you'd built it, this was actually super hard for people to replicate. You had an advantage for many years and then you could get network lock in in terms of the app developer community or the brand or things like that. I think if you look at a company like Tesla or SpaceX, we're big in SpaceX but let me use Tesla as an example. The key again, there's no component to the Tesla that's actually that new. It's just you pulled all the pieces together. You then you re engineered the whole distributor network. You got that in, and it was this complex coordination that made it work. And so it's like what Elon? There's like this lost art of accounting. We figure out how much things cost and you add all the different things together. And Elon has rediscovered this lost art of accounting which other people can no longer practice. And why it's very hard at this point to create a competitor to test.
