Peter Thiel: Monopoly Business

13 April 2017 | Peter Thiel , in Zero to One, emphasizes that “Monopoly is the condition of every successful business” and “All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”

Characteristics of Monopoly:
  1. Proprietary Technology. Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate.
  2. Network Effects. Network effects make a product more useful as more people use it.
  3. Economies of Scale. A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales.
  4. Branding. A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
Building Monopoly
  1. Start Small and Monopolize. Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market.
  2. Scale up. Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.
  3. Don’t Disrupt. Silicon Valley has become obsessed with “disruption.” Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.

Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.

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