“Competition is for losers” – Peter Thiel.
According to Thiel, to have big success in business, you should create a monopoly. Let’s look at what characterizes businesses you don’t want to start first.
Avoid business models that are dominated by the exact opposite, perfect competition. In perfect competition markets, business secrets is known to everyone, companies and products are alike and profits are competed away. The example Thiel gives in the book Zero to One, is that of the market for restaurants. Access to this market is easy and information about how to set up the business is well known. Among others these factors makes the market crowded. It is very hard to differentiate yourself enough to create anything close to a monopoly in a market like this.
So what should you do instead?
A monopoly company according to Thiel, is a company so good at what is does, that no one can offer a close substitute and compete with it. Examples of this is Google in the search engine market and Microsoft in the market for operating systems. To end up here you should go from zero to one which means creating something entirely new. Avoid copying existing businesses and stay away from competitive commodity-like markets.
Biggest Mistake a Startup Can Make
Thiel brings a huge insight to the table when assessing competition and if your idea qualifies as a monopoly or not. He call this the biggest mistake a startup can make. People are very biased to underplay competitive forces and define the market too narrowly to make it look like they dominate their market. People will say “we are the only restaurant serving sushi in this city, so we own the market and have few if any competitors”. Well what about the pizzeria around the corner, or even the supermarket? The supermarket sells groceries which are intended to serve one of the same basic needs of the customer as the restaurants are serving; Hunger. Even though you don’t think you have any direct competitor, there are almost always other hidden competitors you need to consider.
What Important Truth Do Very Few People Agree With You On?
Thiel puts a lot of emphasis on the fact that every new great company needs a secret at its core to be successful. This is reflected in the question he will ask you at a job interview “what important truth do very few people agree with you on?”. There is a lot of secrets waiting to be found, but very few people are looking for them. One of the places to look are in the madness and irrationality which is common in big groups of people. Identify a delusional popular belief held by a large group of people, and you will find the underlying contrarian truth with big probability of business potential.
Choose Your Team
“A startup messed up at it’s foundation cannot be fixed”.
Consider this BEFORE you choose your team and start your company.
Choosing your team or a co-founder is just like getting married. Thiel’s point here is that starting a company with someone you barely know, is just like marrying someone you just met in Vegas. You need to know you can spend a lot of time working together and that you have the same values and plans for the company. This is something so important that you wanna think about it really hard before you set your team. Also the notion that you are either on the bus or off the bus is important. It means that people in the company needs to be in alignment and on the same page. People needs to be committed to the company long term and on the same terms.
If you need employees, using equity instead of cash to motivate them is a powerful tool. It provides an incentive to commit to the company’s success long term, and thus also cut away people who are at you company for short term reasons.
Photo: “Peter Thiel TechCrunch50” by TechCrunch50-2008 – 2008-09-08_17-24-26. Licensed under CC BY 2.0 via Wikimedia Commons – https://commons.wikimedia.org/wiki/File:Peter_Thiel_TechCrunch50.jpg#/media/File:Peter_Thiel_TechCrunch50.jpg