Lecture 5: Business Strategy and Monopoly Theory
Link: How to Start a Startup
(You can find notes to the other lectures here.)
Peter Thiel (@peterthiel)
If you’re starting a company you always want to aim for a monopoly. You always want to avoid competition.
A business creates X dollars of value and captures Y% of X. X and Y are independent variables.
There are exactly two kinds of businesses in the world. There are businesses that are perfectly competitive and there are businesses that are monopolies.
The people that have monopolies pretend not to.
A monopolist describes their business as the union of two separate markets and a non-monopolist describes their business as the intersection.
The something of somewhere is usually the nothing of nowhere. E.g. the Stanford of North Dakota.
You want to go after small markets if you’re a startup.
How you get to a large share of a market is to start with a really small market and you take over that market.
Every moment happens only once.
Technology is designed to give a massive delta over the next best thing.
The thing about network effects is that they’re very hard to get started.
Software businesses excel at economies of scale.
You want to be the last mover–the last company into a category. Microsoft was the last operating system company. Google is the last search engine.
Most of the value of a company exists in the future.
One of the things overvalued in Silicon Valley is growth rates.
Durability is undervalued.
The question of whether or not a business is going to be around a decade from now is what dominated the value equation.
You want something that is an order of magnitude better than what is available today.
Begin by studying the end game.
Even if you have a small market if the adoption rate is too slow you’ll give other people the opportunity to move in.
What is the actual market rather than what is the narrative of the market?
You don’t have enough time to mitigate risk.