Peter Thiel is a fascinating individual for a variety of reasons. On many issues, he is a dissenter, and his opinions on education are no exception. He established the Thiel Foundation, which awards students $100,000 to set up a business if they forgo college.
Yet by far, the most intriguing aspect about Peter is that he knows the secret question that might turn you into the next Mark Zuckerberg or Jeff Bezos.
He was one of the founders of Paypal, which had been sold to eBay for a then remarkable total value of 1.5 billion dollars. Senior team members started many multibillion-dollar businesses, getting the label "Paypal Mafia."
- We wouldn't have our regular intake of cats on treadmills if Jawed Karim, Chad Hurley, and Steve Chen didn't start Youtube.
- Jeremy Stoppelman and Russel Simmons founded Yelp, much to the dismay of grumpy restaurant owners worldwide.
- Premal Shah became the president of Kiva, a global platform that links investors with businesses and students.
- David Sacks later formed Yammer, which was purchased by Microsoft for $1.2 billion.
- Reid Hoffman left to create LinkedIn, which now has over $33 billion market capitalization.
- Elon Musk started two more billion-dollar firms at the same time, SpaceX and Tesla, while also serving as the real-life inspiration for Robert Downey Jr.'s Iron Man character.
- Lastly, Thiel founded Palantir, whose Palantir Gotham product is utilized by counter-terrorism experts in the United States government and the Department of Defense. It's also a multibillion-dollar corporation.
I almost did forget to mention this fact: Thiel was also the firm's first outside investor. He invested $500,000 in a seed round that he eventually sold for more than $1 billion when Zuckerberg took the company public. He also holds a total of 5 million shares in the corporation.
What is the aim of it all?
Peter Thiel is the only guy on the earth who can assess what it takes to build a billion-dollar company.
So maybe now you'll pay close attention to "The Question" in the following part and then go on to start the next great firm in the world.
Now that we've cleared everything, we must get to work.
So What Is “The Question”?
It seems improbable that the next Bill Gates will create an operating system. The next Mark Zuckerberg will not develop a social network.
And attempting to imitate what those individuals have done will certainly result in you not continuing in their footsteps.
People who found the world's most prominent firms look for value in unusual places. They do it by thinking in terms of basic principles rather than formulae. The most counter-cultural thing you can do is think for yourself rather than follow the pack.
Steve Jobs, for example, drew inspiration for Apple's computers by glancing at kitchen equipment at department stores. He saw that many of them had lovely shapes to achieve their purpose.
When Jobs returned to Apple to save the company from bankruptcy, everyone who worked on computers said that making computers "look attractive" was the worst concept they'd ever heard. People really wanted a computer with greater processing power and memory, not one that looked nice on a desk.
But it isn't at all what Jobs had been doing. He was really curious about the full user experience.
Computers were functional grey blocks at the time, and the last term you'd use to describe them was "delightful." He realized that the user's experience with the equipment was just as important as what the device could really perform.
They'd have something if they took that technique all the way through the operating system and the apps that users would use on the PC.
Apple's answer to "The Question" was the first generation of iMac computers. Everything followed - the iPod, iPhone, iPad, and now the Watch.
"What important truth do very few people agree with you on?"
Let's take a look at this question.
As Thiel notes in the book, a good response to this question reads like this. "Most people believe in x, but the truth is the opposite of x."
This statement is something Steve Jobs might say: The bulk of people believe that customers want a machine with more computing power. But the reality is that what they care about most is an incredible experience while using it.
He didn't get to this answer in a moment of inspiration. He arrived at it by paying attention to his surroundings and observing consumers over time.
The goal is to show that going against the grain isn't enough. That is not what a contrarian does, though.
Like Steve Jobs or Peter Thiel, a contrarian thinks for himself and independently.
Here's how to do it as well.
Step #1: Find out what everybody agrees on.
Direct answers to "The Question" are frequently difficult to come by. You're not going to finish this overview and immediately come up with the next billion-dollar idea.
According to Thiel, starting with a basic query, such as "What does everyone agree on?" is easier.
You might hunt for this solution both within and outside of your business. Still, the key is to make sure you've identified something that practically everyone agrees on.
Step #2: Dig deeper to figure out if it's true or not.
When you've discovered something that everyone thinks to be true, consider what assumptions individuals rely on to get that conclusion.
You'll discover that everyone believes something is real in certain circumstances just because they want it to be true. The banking business is a perfect illustration of this.
Nassim Nicholas Taleb created a fantastic book called The Black Swan. He sets out the notion that uncommon and unexpected occurrences happen far more frequently than we think they do and that they have an outsized influence on history.
He points out in the book that one of the assumptions on which individuals in the finance industry built their models was erroneous. One major blunder they made was assuming that the normal distribution (the bell curve) would explain all conceivable outcomes and serve as the foundation for their risk assessment tools.
Ironically (and regrettably), the book was released in 2007, just as the economy was about to collapse, proving his claim.
Taleb had investigated a popular myth and discovered what lay behind it: what Thiel refers to as the contrarian truth.
Step #3: Based on this contrarian truth, what valuable company is nobody building?
It's one thing to discover a counterintuitive fact. But it's quite another to transform it into a world-changing enterprise.
To go to the next phase, you must first comprehend how to produce and derive profit from the market.
Thiel claims that each world-changing company is unique, earning a monopoly by addressing a unique challenge. All other businesses are in the same boat; they can't seem to get ahead of the competition.
As a result, you're in a pickle. You can't choose a solution that is only marginally better than what is now available. It's not possible to make a better mousetrap.
You must establish a firm that can generate monopolistic profits.
Why You Should Build a Monopoly
The majority of business advice focuses on establishing and expanding a company. Sticking out from the crowd, differentiating yourself, and even developing a Blue Ocean Strategy all begin with the assumption that you have competitors. And that you must outperform them in some manner.
Focusing on competition, however, misses the purpose, as Thiel explains in the book:
Tolstoy begins Anna Karenina by noting this: "All happy families are alike; each unhappy family is unhappy in its own way."
Happy firms differ from one another in a variety of ways. Each one obtains a monopoly by addressing an uncommon problem. All failing businesses are the same: they cannot compete against others.
In reality, competition implies no profits for anybody, no significant distinction, and a fight to avoid extinction.
On the other end, monopolies reap monopolistic profits for years, if not decades. It's a positive cycle since monopolies can then use their earnings to:
- keep inventing,
- establish long-term plans, and
- fund ambitious research initiatives that competitive enterprises can't even imagine.
Most individuals overlook this clear opportunity because monopolies are regarded as a societal blight that must be eradicated by legislation and regulation.
Consider Google, which has a virtual stranglehold on the search engine business. Sure, they like to brag to the public about being a technological business with big plans for self-driving vehicles, mobile gadgets, and wearable computers.
However, search advertising, with a 68% market share, accounts for 95% of its income.
That's the kind of business you should aim to create.
What a Monopoly Company Looks Like
We've already covered that you need to unearth the fact that nearly no one else agrees with and transform it into a firm that focuses on developing a monopoly. Let's examine what a monopoly business looks like.
A patented technology, according to Thiel, must be at least 10 times better than its closest competitor in some crucial parameter.
Obviously, the quickest way to improve by a factor of ten is to build something entirely new.
Don't get hung up on the word "technology"; Thiel refers to a better manner of doing things when he says it. For example, when Amazon supplied at least 10 times as many books as any other bookshop, it made its first 10X improvement.
Simply defined, network effects refer to the fact that it becomes more beneficial when more people use a product. For example, using a social media network that no one else was using would be of little use to you. It's for this reason that you are on Facebook.
However, there is a catch. Network effects are tremendous, but while the network is tiny, you must also make your product or service useful to the very first consumers.
As a result, your plan should begin with conquering tiny markets. For example, Facebook started with Harvard students, then expanded to a select number of other colleges, and the rest is history.
Economies of Scale
A monopolistic firm grows stronger as it grows larger since the fixed expenses of producing a product can be stretched out over ever-higher sales volumes. That's what Thiel reminds us.
This is particularly true in enterprises where the marginal cost of manufacturing a second product duplicate is near to nothing, such as software or electronic content.
The possibility for a large scale should be embedded into the basic design of a strong business.
By nature, a corporation has a monopoly on its own brand; thus, building a strong brand is an effective strategy to assert that monopoly.
The most frequently cited example is Apple, which is worth studying if you build your own dominant monopolistic brand.
How to Build a Monopoly Company
Of course, knowing what something appears to look like doesn't teach you how to create it. So let's discuss some practical methods for moving from a concept to a monopoly.
Start Small and Monopolize
According to Thiel, the ideal target market for a company is a small group of specific people who are all in one place and are supplied by few or no rivals. If we must err, we should always fall on the side of starting too little rather than too big.
It's better to aim for a 75% share of a $1 billion industry than a 1% portion of a $100 billion industry.
The bigger market will either:
- lack a solid starting point or
- be competitive, making it difficult to attain that 1%.
You may scale up by going on to other markets once you've controlled a small one.
Jeff Bezos set out to dominate all online shopping, but he began with books since it was a market where he could make a 10X increase and conquer. They only moved on to neighboring markets after dominating that market.
To steadily develop, you need discipline, which most firms and entrepreneurs lack.
Recall that your aim when you enter adjacent markets is to limit competition as much as possible.
You focus on competition if you characterize what your organization accomplishes in terms of "disruption." You won't be developing a monopoly if your firm can be described by referring to how you do things differently from the competition.
Move Last, Not First
Despite what has been said about the corporate world's first mover advantage, practically all monopolies are formed by moving last.
Your objective should be to produce the final major development in a certain market and profit from monopoly profits for years, if not decades.
The Importance of Sales
Most businesspeople underestimate the significance of distribution, another name for everything it takes to sell a product, particularly entrepreneurs in technology firms.
Simply stated, a fantastic concept with no viable sales strategy is a failure.
When it comes to why companies fail or succeed, two vital facts emerge:
- Most firms have no distribution channels to work with: the most typical reason for failure is poor sales rather than bad products.
- You have a fantastic business to get just one distribution channel to operate. You're done if you try for many but don't succeed with any.
Superior sales and distribution, on the other hand, can by themselves create a monopoly based solely on distribution. The converse is incorrect.
There are numerous excellent sales ideas in the book that we don't have time to detail, but there are two key concepts to remember.
To begin with, the typical net profit you generate over the life of your relationship with a client (Customer Lifetime Value) must be greater than the average cost of acquiring a new customer (Customer Acquisition Cost).
Second, except what Thiel refers to as the "distribution doldrums"—items priced around $1,000—you can perform well at practically any average price point. It's too small to hire salespeople (because you can't afford to pay them), yet it's too big for a client to buy straight from your marketing efforts.
Well, are you serious about making a difference in the world?
Suppose you can build a firm that finds a counterintuitive fact and has monopolistic profit qualities. In that case, we could see you on Forbes' list of the world's wealthiest people shortly.