It could seem quite contrarian indeed to question generally accepted conventional wisdom that competition is synonymous with capitalism. Ever since Adam Smith, we have been educated to believe that free competition is the foundation of economic prosperity and every entrepreneur should willingly and gladly accept that competing for market share is the rule of the game.
Nor would you expect such a contrarian point of view to come from someone who studied at Stanford law school before going on to co-create a successful start-up like Paypal before selling it off to eBay for 1.2 Billion USD.
But this is what Peter Thiel precisely does in his very provocative and contrarian minded book “Zero to One: notes on startups or how to build the future“. In his presentation to the Chicago Ideas week in 2015 on the subject of entrepreneurship, he touches of some of the key ideas and themes that run through “Zero to One…“. In his speech below, he underlines three key points that he believes entrepreneurs should bear in mind which are nevertheless contrary to conventional wisdom on how to get a startup to succeed.
1. Aim for a monopoly in a niche market to escape competition!
To succeed, businesses need to be unique and so differentiated from their competitors that they are no longer even competing. Why? Because as Peter Thiel points out, a world of perfect competition “competes away” all profits. The more companies compete over the same finite piece of cake, the less cake there is, the more their profits are squeezed and the less cash flow they have, the less they can invest in long term growth. Successful start ups create their own market through discovering and growing a unique value proposition and executing fast before any possible competition has time to react. In other words, they escape the competition trap by creating a monopoly in a niche market!
Peter Thiel cites Google as a good example of a company which has managed to “escape the competition trap” by acquiring more or less a monopoly of the internet search market thereby guaranteeing itself huge cash flows for years to come. Happy companies like Google found a way to radically differentiate themselves from the competition early and escape the competition trap. Unhappy companies however are all alike because they failed to escape the essential sameness of competition. So the goal for any start up is to build a technology or a solution or an answer to a market need that is so unique that it allows the startup to escape from this competition trap. As Peter Thiel provocatively asserts, “competition is for losers”.
2. Find a secret that nobody else can see!
For Thiel, the “cone of progress” has become too narrow and technological innovation seems to have been restricted to the IT space in the last decade or so. The IT space will continue to innovate but there are other realms which are worthy of exploration, such as bio-tech and space. We seem to have stopped exploring these other realms for many reasons but we need to seek out the secrets that these areas are hiding. Secrets are unique opportunities that others don’t see. There are still many secrets to be discovered in the world of medicine, space exploration, bio-technology and it takes effort, dedication, hard work and investment to uncover the secrets these realms still contain. Above all, whether it is iT or bio-tech, to succeed, we need to see a unique problem nobody else has tried to solve and solve it rather than simply compete with others in the same market.
3. Globalize horizontally and innovate vertically!
Finally, Peter Thiel distinguishes between Globalization on the one hand and Technological innovation on the other and while he believes we must do both, he asserts that we must make a careful distinction between Globalization on the one hand and Technological Innovation on the other. For Thiel, Globalization means spreading existing technology horizontally on a massive scale. He cites China as an example of horizontal growth where the Chinese are copying on a large scale technologies invented elsewhere in order to close the gap as fast as possible with the developed world. This we need to continue to do of course.
On the other hand, Technological Innovation or vertical innovation as he calls it brings new and radically different step changes in existing technologies and this technological innovation can only be achieved through focusing on widening the cone of progress beyond IT into other neglected realms of technological exploration.
As Peter Thiel says, we need to “develop the developed world” because the very idea of a “developed” world implies that we no longer need to progress. If so, we will gradually slip into a state of sclerosis. So the good news is that there are still new frontiers to be discovered and conquered in medicine, space, aeronautics, science,..and Thiel invites all would be entrepreneurs to seek out the secret path and unique idea that will set them on the way to success, with a lot of hard work, risk and investment of course.
In “Zero to One”, it is worth recalling 7 core questions Thiel says all businesses should answer before launching any new venture:
- The Engineering Question: can you create breakthrough technology instead of incremental improvements?
- The Timing Question: is now the right time to start your business?
- The Monopoly Question: are you starting with a big share of a small market?
- The People Question: do you have the right team?
- The Distribution Question: Do you have a way not just to create but to deliver your product?
- The Durability Question: will your market position be defensible in 10 and 20 years into the future?
- The Secret Question: Have you identified a unique opportunity that others don’t see?
Very hard questions of course. Very contrarian and provocative and food for thought for all entrepreneurs big and small!
Enjoy “Zero to One”, a great overview of the forces driving innovation in the IT sector and why we need to widen the cone of progress if we want to launch a new age of entrepreneurialship. Elon Musk is showing the way!