Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt

My longtime business partner, fellow Canadian, and maverick CEO of our independent financial research firm Keith McCullough bought a bunch of copies of entrepreneur Peter Thiel’s book Zero to One and handed them out to our management team a couple of weeks ago. 


Now, before I weigh in with the one important, fundamental flaw in his book, let me just say that I really enjoyed reading it—Thiel wrote a fun and insightful page-turner, filled with tales of immense entrepreneurial success, Silicon Valley insider baseball jargon and motivational life quotes.

Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt - z1

Thiel begins his book with a question. It’s a thoughtful, rather interesting question that he normally starts every interview with job candidates or CEOs seeking financial investment:


                “Tell me something that’s true, that almost nobody agrees with you on.”


In the interest of full disclosure, while I’ve never personally interviewed with him, I did apply for a job at Thiel’s hedge fund Clarium Capital many years ago, and if I were to sit down with him today, and he asked me the same question, my answer would be:


                “Your book, Zero to One, is discouraging to aspiring entrepreneurs.”


Now why would I go and say that? For starters, because I believe it to be true. And based on glaring reviews from entrepreneurial notables including Mark Zuckerberg and Elon Musk, almost nobody agrees with me!

Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt - py2

Look, I recognize and appreciate Peter Thiel’s success. Only a fool would question his business acumen, visionary insight and non-conventional thought leadership.  That said, I don’t think his book is helpful to aspiring entrepreneurs. In fact, his advice can actually be discouraging and counter-productive. It encourages would-be entrepreneurs to singularly focus upon the one great, elusive, multi-billion dollar idea.  Or as he calls them: “secrets.”


This is bad advice for a number of reasons.  First, aspiring entrepreneurs will spend sleepless nights staring at the ceiling, racking their brain searching far and wide for the “perfect idea,” rather than just getting going on their idea.  Here’s a question: Instead of trying to identify the next “grand slam” idea, what’s the problem with a “double” or “triple”?


Second, while there are only so many Facebooks, Twitters and PayPals in the world, there are plenty of other product and company ideas that fall somewhere between “working for someone else” and taking the leap of faith and initiative to do your own thing and starting a viable business.  Thiel’s book discourages smaller scale entrepreneurship. What’s wrong with starting a restaurant? (See Danny Meyer).


Over the course of the last decade, I’ve been involved in a number of start-ups or turnarounds.  My “day job” is Director of Research here at Hedgeye, which Huffington post recently called the ESPN of Finance. I’m an investor and board member of Sauce Hockey, which creates trendy apparel for the hockey market and recently became a part owner of the NHL’s Arizona Coyotes. I also sit on the board of FarmLead, which is North America’s only fully transparent agriculture marketplace and am an investor in FireFly Space, a revolutionary new space rocket company which is a derivative of SpaceX.


None of these companies currently boast billion-dollar valuations (although some do possess that potential down the road). Moreover, none of these companies, which have all been successful in their own right, would have ever started if the founders got hamstrung overanalyzing the uniqueness of their ideas.


As the famous quote goes:


“Twenty years from now, you will be more disappointed by the things that you didn’t do then by the ones you did do, so throw off the bowlines, sail away from the safe harbor, catch the trade winds in you sails. Explore. Dream. Discover.”


My humble advice to an aspiring entrepreneur is simple and can be summed up in three words:


Just get going.


Recognize that there is no such thing as the “perfect idea.”  There never will be. And there is no perfectly uncompetitive market.  There is only lost time and opportunity. Maybe you’ll hit a grand slam like Thiel or Zuckerberg. Maybe you’ll hit a double. Who cares? At a bare minimum, you’ll be in the game, on base. So again, just get going.


Having said all that (and even if I disagree with Thiel’s initial premise), he does offer some useful advice.  From my own experience, here are three I would emphasize:


1) Distribution matters – This is perhaps the most critical lesson I’ve learned over the past six years.  Simply put, it doesn’t matter how differentiated or proprietary your product or service is, your customers will not find it on without a cohesive sales and marketing effort.  Definitely invest in a sales team.


2) Have a plan – Even though he is clearly a “big idea” type of guy, Thiel also emphasizes the importance of having a plan and measuring success against it.  The plan can always change, but there has to be a benchmark for success or failure.  A simple business plan (no matter how brief) with key metrics is critical to any business.


3) Cultural – Thiel calls the Silicon Valley computer science culture nerdy. Whether that is true or not, his point about knowing your partners very well and having similar backgrounds (at least when the companies are small) is critically important.   When the going gets tough, and rest assured it will, it’s better to know the stuff your partners and colleagues are made of in advance.


Bottom line: Thiel’s book is well worth reading. Download a copy when you have a minute. But take it with a grain of salt and remember, there is power in action. Take your $100,000 idea, $1,000,000 idea or $1,000,000,000 idea and just get going for Pete’s sake!


Watch our bi-weekly update on our active Macro Themes and Thematic Investment Conclusions below.


CLICK HERE to download the associated presentation in PDF format (20 slides).


As always, feel free to ping us with questions.


Have a great weekend,




Darius Dale


RTA Live with Keith McCullough

Hedgeye CEO Keith McCullough breaks down the Real-Time Alerts positions as of 1:00PM ET and fields subscriber questions. 


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LULU – We’re Out

Takeaway: Mgmt gave us zero comfort that this can be a ‘big idea’ in the $60s. It needs to shake the etch-a-sketch on its business model.

On Tuesday we took LULU off Hedgeye’s Best Ideas list, and today we’re taking it off our Retail Long list altogether. We’re out.


In our BlackBook on Tuesday (Link: CLICK HERE) we said that there’s $4.00 in earnings power hidden in there, but we need the conviction that management could find it. After today’s call, we we’re far from convinced – even farther than we thought we’d be just a few days ago. In order to justify a 30x p/e and give anyone hope of something in the $70s or $80s (presumably what you’re playing for in buying it today) we think that the company needs to completely reset its business model.


By ‘reset’ we think it has to stop focusing so much on a) improving gross margin and b) building out its North American real estate market.


a) First off, we’re hard pressed to think we’ll get much pushback from people saying that they’ll pay up for a higher margin. That might be the case for KATE (6% on its way to 19%) and RH (9% going to 16%), but not for LULU, which is 21% down from 29% -- and probably belongs in the high teens – which is NOT a bad thing. Management made it clear that a key area of focus remains driving Gross Margins. That’s a #mistake – from both a tactical and a communications standpoint. Laurent noted how “we don’t drive our business with markdowns.” Well, unfortunately he competes with brands that do. As long as this team hangs onto this mentality, there’s a greater risk of an unexpected slowdown in quarterly revenue.


b) As for real estate, we outlined in our Black Book on Tuesday why moving into so many new markets in the US will prove to be dilutive to both productivity and comps.  But that’s exactly what LULU double downed on. Management discussed adding another 100 stores in NA (US, mostly), some of which will be larger-format stores that will deleverage occupancy costs (and are untested)


Is Lululemon a great global brand? Absolutely. But Lululemon Athletica, Inc is not a great global company. It’s not even a good global company.  Let’s be clear, it absolutely can get there. But it has to break out of this North American owned retail-centric model and follow companies like Kate Spade, Kors, Nike, Ralph Lauren, and Under Armour (KATE AND UA are the most appropriate comps for many reasons). That means aggressively building out its international model – not by adding a token store in Dubai or ‘doubling’ its presence in Singapore by adding one more store. It needs to own the customer relationship by producing different product for different customers at multiple price points and distribute where the consumers shop. It’s not enough anymore to build up stores in new markets (or fill-in markets) and expect consumers to come shop. They need to be where the consumer shops. That means selling at Retail (which they do), e-tail (they’re getting there), and importantly – wholesale (zero presence).


It was pretty clear that this team collectively is focused on doing the same thing it’s done all along – just better. That’s not enough for us. We need it to think bigger. The brand can handle it, and stockholders deserve it.


The other key factor was new CFO Stuart Haselden, who has only been on the job for about six weeks. There are a lot of puts and takes here.

  1. The guy sounded like he’s been at the company for six years, not six weeks. He had an extremely strong control of the numbers for someone who was put in front of shareholders for the first time.
  2. As he reviewed the numbers, I scratched my head wondering how he could sound so comfortable in such a short time. Then it hit me…he was literally reading the script that former ‘cfo’ John Currie used for years.
  3. He sounded more convincing than Currie, which is a plus. But we wonder what kind of mandate he has to illicit change and build a finance culture inside a company that was built specifically to box out any kind of ‘finance culture’. (NOTE, both UA and KATE have one).
  4. The Q&A was a bit redeeming, in that Stuart answered 75% of the questions. He literally took over from Laurent, and it was difficult to tell who was running the show. Either a) he’s the more dominant personality, b) Laurent – who is naturally uncomfortable with analysts after his disastrous first outing last year – asked Haselden to take the lead, or c) The Board – who we think is Haselden’s REAL boss, told him to dominate the call.
  5. Either way, the dynamic was very notable. We can only hope that this results in a material change in the decision making at LULU. That has yet to happen. But in fairness, it is way too soon to happen. We’re inclined to think we’ll be looking at more meaningful changes in the functionality of this leadership team later this year. But again – we need draconian changes in the model as outlined above to make this a great stock. We’re comfortable revisiting it when the research suggests that’s happening. 

Keith's Macro Notebook 3/26: Oil | U.S. Dollar | S&P 500


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Oil, USD and S&P 500

Client Talking Points


Obviously we didn’t have air strikes into Tikrit in our model, but that’s what moves the oil market in very short order here. We are seeing a 4.8 standard deviation move on our immediate term trade duration which puts oil up at the top of the risk range. The risk range for WTI Oil is now $10 wide, this will just perpetuate more volatility. The immediate term risk range for WTI Oil is $42.39-52.29. This is a great selling opportunity for oil.


Probing the lows here the bottom end of the risk range for the USD is just north of $96, the trend line of support is closer to $93. We are not changing our bullish view on the USD or our bullish view on holding a lot of cash. The USD risk range is almost being as asymmetric to the upside as oil is to the downside, we see no resistance for the USD until $99.65 and the upside down to that is that we have no support for the EUR/USD to $1.04.

S&P 500

2,046 is support and 2,084 is resistance for the S&P 500, what was support has now become immediate term resistance. What is even more interesting, is that the trend line that is very much in play, is pretty much right where the S&P 500 started the year. The futures have you below the trend line and below the trade line and again that’s obviously a very bad thing if it were to hold. Now what would be the catalyst...EARNINGS SEASON. The music will stop once the economic gravity hits the tape so again watch out for this, these phase transitions can happen quickly. If the S&P 500 can’t get back above 2,058 this will likely turn into a bearish trend for the S&P 500.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Manitowoc  (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007.  We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.


While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market.  All else equal, we’d view improving demand as a net positive.  On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.


Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.

Three for the Road


Nice beat by $LULU. But guidance looks like death.



The more time you spend contemplating what you should've done ... You lose valuable time planning what you can and will do.

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