How to make a monopoly from nothing

Notes and ideas from Zero to One by Peter Thiel on how to build the future

Photo by BP Miller on Unsplash

Zero to One by Peter Thiel has to be one of the best business books. If you want to build the future or be the next Elon Musk, this book is for you. Below are the notes and ideas from this book.

What is the future?

• The future is the progress of doing new things, not copying things that work. If everyone copied things that would work, there would not have enough resources for 8 billion humans
• Startups are the max amount of people who can achieve the most. A lone person cannot create a whole industry for themself, and a big corporation is too slow to invent and innovate. The future comes from startup thinking
• If the future will be different than the present right now, then we must apply contrarian thinking: What important truth do very few people agree with you on? In business terms, what valuable company is nobody building? You must look where no one is looking

Lessons about startups

1.) It is better to risk boldness than triviality.

2.) A bad plan is better than no plan.

3.) Competitive markets destroy profits.

4.) Sales matter just as much as products.

— excerpt from Zero to One

Why boldness is better than triviality

If you work in small increments, no one will buy your product. One step up is not enough for a consumer to buy your product. However, if you innovate something at least 10x better, or invent something new, people will buy your product, and you will most likely create a whole new market for yourself to dominate.

Why “lean” thinking sucks

Silicon valley loves to romanticize having a lean, flexible plan. That is just a code for “no plan”. Having at least a bad plan is better than having no plan.

Competition and capitalism are total opposites

People and economics often associate competition and capitalism, and how competition is good. The truth is the opposite. Competition destroys profits and leads to losses or break-evens at best.

Your product will not sell itself

It is nearly impossible for your product to be so good it can sell itself without any marketing or sales. Sales and marketing are just as important as building the product, if not more.

How to build a monopoly

Characteristics of Monopolies

• Proprietary technology — Every monopoly has some proprietary technology that either does something new or does something at least 10x times better. Google had its search algorithms. Amazon sold 10x as many books as Barnes and Nobles.
• Network effects — If all of your friends are on Instagram, then you will join too. But, if none of your friends are on Facebook, then you won’t join Facebook. Great businesses utilize network effects to grow their user base at an exponential rate
• Economies of Scale — Businesses should get stronger as they get bigger. If your business loses more money as it gets bigger, then you’re doing something wrong
• Branding — Every monopoly has some strong branding associated with it. For example, Apple brands itself in such a way that it has become a luxury brand (almost).

How to build a monopoly

1. Start in a small market, and monopolize
2. Gradually scale up in different markets
3. Don’t disrupt. Disruption is just a buzzword in Silicon Valley that every business tells itself.
4. The last will be the first. If your monopoly is truly successful, it will stay as being the first in the market, and be the last for years to come.

Secrets

Every company is built around a secret. There are 2 types of secrets: nature's secrets and people's secrets. Ask yourself 2 questions to find secrets: What secrets is nature not telling you? What secrets are people not telling you?

For example, Tesla was built off of a people's secret that people like fashionable clean energy vehicles, and they like to show them off. So, Tesla made clean energy sports cars, but they were fashionable.

How to market your business

The above diagram pretty much explains it.

If your target customer is regular consumers, viral marketing could be the way to go with a potential CAC (customer acquisition cost of $1.00). On the other end of the spectrum, something like SpaceX would require 10 million in distribution to convince the government to use their spaceships.

But, in distribution, there is a dead zone. Let’s say you created a product for smaller businesses to track their shipments for $1,000. How would you advertise? TV advertising would be too broad, and having specific ads targetted to them won’t convince any small CEO to buy your $1,000 product. Mass-appeal products can use marketing, and bigger complex products can use directly talking to people, but this dead zone is where distribution is almost impossible. That is why there are barely any products for the small business owner, unlike the ones the big businesses use for granted.

Creating a business plan

Every great business plan should include these 7 questions:

1. The Engineering Question — Can you create breakthrough technology instead of incremental improvements?
2. The Timing Question — Is now the right time to start your particular business?
3. The Monopoly Question — Are you starting with a big share of a small market?
4. The People Question — Do you have the right team?
5. The Distribution Question — Do you have a way to not just create but deliver your product?
6. The Durability Question — Will your market position be defensible 10 to 20 years in the future?
7. The Secret Question — Have you identified a unique opportunity that others don’t see?

For example, for Tesla:

1. Technology — Tesla’s technology is so good that other companies rely on it. But, Tesla's greatest achievement isn’t the individual parts, but the ability to integrate these different parts into one superior product
2. Timing — In 2009, all of the hype was for clean energy
3. Monopoly — Tesla started in a tiny submarket: high-end electric sport cars
4. Team — Tesla’s CEO is a great engineer and salesman, so he assembled his staff to be the same way
5. Distribution — Most car companies sell their cars via dealerships, but Tesla sells their cars in their stores
6. Durability — Tesla had a headstart and is moving faster than anybody else securing their position 10–20 years down the line
7. Secrets — Tesla knew that fashion drove the interest in clean tech. People like to flex their clean energy vehicles, but Tesla made them look even cooler by making clean tech vehicles look sleek, modern, and fashionable

Hit all of these 7 questions, and you’ve got yourself a brilliant monopoly that can make you a fortune. Hit none, then you will run into a lot of “bad luck”.