“The most important thing of all is not to oppose the crowd, but to think for yourself.”
This statement alone should give us pause, “all happy companies are different.” Because the reliance on “best practices” has never been greater. At a time when opportunity increases due to the fast rate of change, so does risk. But we can put a price on risk and learn to appreciate that it is part of the very actions we take to create new opportunities. So understanding its nature should go hand in hand with understanding our own appetite or tolerance for it.
In Zero to One: Notes on Startups, or How to Build the Future, a book based on his program for entrepreneurs at Stanford, Peter Thiel devotes a chapter to the idea that happy companies are all different from each other based on his premise that each moment in business happens only once -- one Facebook, one Microsoft, one Apple, and so on.
Difference is much more than a positioning statement; it draws from behavioral cues, business practices or how we do what we do, our relationships, and the experience of doing business with us, which contributes to our reputation. Thiel says it's the answer to the business version of his contrarian question, “what valuable company is nobody building?” But, he says:
Creating value is not enough -- you also need to capture some of the value you create.
This means that even very big businesses can be bad businesses.
Here Thiel introduces two different scenarios -- a highly competitive environment, and a monopoly -- and through examples, he makes the case for why the latter is a much better situation.
The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly.
“Perfect competition” is considered both the ideal and the default in Economics 101. So-called competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to e made, new firms will enter the market, increase supply, and drive prices down, and thereby eliminate the profits that attracted them in the first place.
If too many firms enter the market, they'll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.
We already know from the core premise of his argument that he intends to demonstrate how the opposite is a much more desirable position for a business. He says:
The opposite of perfect competition is monopoly. Whereas a competitive form must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.
by “monopoly,” we mean the kind of company that's so good at what it does that no other firm can offer a close substitute.
Thiel uses Google as a good example of going from 0 to 1, or distancing its potential competition so much that it poses no threat to its core business -- search. Monopoly is about the accumulation of capital, while competition puts profits at risk of wiping away. The lesson for entrepreneurs, “if you want to create and capture lasting value, don't build an undifferentiated commodity business” opens a discussion on the lies people tell:
To the outside observer, all businesses can seem reasonably alike, so it's easy to perceive only small differences between them.
But the reality is much more binary than that. There's an enormous difference between perfect competition and monopoly, and most businesses are much closer to one extreme than we commonly realize.
The confusion comes from a universal bias for describing market conditions in self-serving ways: both monopolists and competitors are incentivized to bend the truth.
An expression often associated with Steve Jobs' ability to bend reality. The “reality distortion field” term coined by Bud Tribble at Apple Computer in 1981 to describe Steve Jobs' charisma and its effects on the developers working on the Macintosh project.
It's not a complete lie companies tell, but a clever strategy to protect themselves from too close scrutiny in the case of monopolies, and a gross underestimation in the case of scale of competition, especially when it comes to entrepreneurs looking at market opportunity:
Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets.
Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.
The war metaphor that has permeated our marketing and business language is actually about competition, says Thiel, “the competitive ecosystem pushes people towards ruthlessness or death.” A recent example of this pressure to stay in front of competition was the news of 'World's best chef' Benoît Violier's death. “While a Michelin star can bring glory, the pressure to maintain the rating is intense.”
When we don't have to worry so much about competitors, we can focus more on product and service experiences. “Money is either an important thing or it is everything,” says Thiel. Money is useful in a dynamic world, it can help us invent new/better things. Money is different from greed, a symptom that capitalism lost its mojo.
In Thiel's view:
Creative monopolies give customers more choices by adding entirely new categories of abundance to the world.
Tolstoy opens Anna Karenina by observing “All happy families are alike; each unhappy family is unhappy in its own way.” Businesses are the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem.
There are both intended and unintended consequences to how we go about building that monopoly.
Zero to One presents an alternative view of the value of technology along with optimism for the future. Love the message that today's best practices lead to dead ends and that we need to think bout business from first principles instead of formulas.