Zero to One (2014)
Dare to Dominate
The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:
- Make incremental advances.
- Stay lean and flexible.
- Improve on the competition.
- Focus on products, not sales. These lessons have become dogma in the startup world; those who would ignore them are presumed to invite the justified doom visited upon technology in the great crash of 2000.
And yet the opposite principles are probably more correct:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matters just as much as product.
Whereas a competitive firm 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. If you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Then monopolies can keep innovating because profits enable them to make the long-term plans and to finance the ambitious research projects that firms locked in competition can’t dream of.
Every monopoly is unique, but they usually share some combination of the following characteristics:
- Proprietary technology. As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market.
- Network effects make a product more useful as more people use it.
- 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.
- A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible. Have a secret, something you know that most of the rest of the world does not. Outliners are built on secrets.