- Biz creates X dollars of value and captures y% of x;
- Most people think x and y are independent variables
- Search vs. airlines; profit margin for latter = .2% compared to 20% for search
Perfect comp
- Pros: easy to model efficient in a static world and stable
- Cons: irrelevant in a dynamic world
Spectrum of perfect comp vs. monopoly
- Each tells a lie.
- New markets are a possibility of one to n but that can only last so long, so you’re not creating something where there is nothing
- We shouldn’t want a monopoly to persist and novelty is wanted: Monopolies generate good for the world. If a business has achieved a monopoly, it indicates that the business has truly gone from "zero to one," and created something for society that did not exist before or improved upon an existing technology to such a degree that it has made the old technology obsolete
- Ha: Monopolies also generate good for the world because of the privilege that major profits allot. "Since [Google] doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products, and its impact on the wider world."
- Context matters: For example, if Google is seen primarily as a search engine company, they own 68% of that market. In contrast, if they're described as playing in the global advertising market, they only own 3.4%.
- If monopolies are ephemeral, sure: Monopolies are only bad when a business lingers in that position unchallenged for too long. Ideally, new monopolies take over, "adding entirely new categories of abundance to the world." (Think of how Apple's "mobile computing" replaced Microsoft's hold on the PC market, which itself supplanted IBM's "hardware monopoly" of the 1960s and 1970s.)
- His four levers: Prioritize four aspects of your business over a hyper-focus on growth: proprietary technology, network effects, economies of scale, and branding.
- The four mistaken entrepreneurial rules:
- Make incremental advances – Don't try to "change the world." Take one step at a time and don't get too caught up in a "grand vision."
- Stay lean and flexible – Eschew the formal planning. Focus instead on "iterating" on your business model and learn as you go.
- Improve on the competition – Inventing something new is risky at best. Play it safe and build off a technology that has already proved itself.
- Focus on product, not sales – The right product should speak for itself, no wasteful spending on sales and marketing needed.
- Instead, here are Thiels:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matter just as much as product.
- Monopolies as productive as long as they aren’t artificially constrained or rent-seeking: Instead, a healthy market might be described as one in which there are serial monopolies, each of which develop innovative products so compelling that the new company ends up making the old one obsolete in some respect.
- When competition is distraction: In all the distractionss of competing against one another, Microsoft and Google had both lost out to Apple. The next time someone warns against monopolies and expounds the benefits of competition, consider these examples.
- 7 questions
- Can you create breakthrough tech instead of incremental improvements?
- Failed case: Solyndra was a cleantech startup that created solar panels using a new type of cell – a cylindrical solar cell. The problem, however, was that the cylindrical design was inefficient. It was actually a worse conductor of sunlight than the flat cells. Rather than being ten times better, Solyndra had created a product that was actually worse than the current state.
- Is now the right time?
- SpectraWatt was another cleantech startup involved in the silicon solar cell space. SpectraWatt's CEO was convinced that the field was on the brink of taking off and compared the solar industry at present time to the "microprocessor industry in the late 1970s." In the 1970s, microprocessor technology was indeed beginning to boom. Over the coming decade, the technology would become exponentially more efficient. SpectraWatt's CEO was kidding himself if he believed that solar was in the same realm. While the first microprocessor in 1970 was followed by exponential improvements to it over the coming decade, the first silicon solar cell had been discovered by Bell Labs in the mid 1950's, and since then had seen "slow" and "linear" efficiency improvements. There was no reason to believe that this would pick up in the 2000s. SpectraWatt's timing was off.
- Are you starting w/ a big share of a small market
- Do you have the right team?
- “Never invest in a tech CEO that wears a suit?” ha, heuristic
- Do you have a way to not just create but deliver your product?
- Will your market be defensible 10 to 20 years into the future
- Have you identified a unique opportunity that others don’t see
Peter Thiel o to 1
