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To Be or Not to Be (a Monopoly)

To Be or Not to Be (a Monopoly)
Photo by Surja Sen Das Raj / Unsplash

Since re-activating my audible account, I bumped into a few books I read during my time at college but wanted to re-visit. Thankfully the algorithm recommended to me one of my favorite business books: „Zero to One“ by Peter Thiel, best known for co-founding PayPal and Palantir Technologies. 

The book is super dense with all sorts of gems of what it means to build companies and how to do it successfully. There is one part that stuck with me this week — his unconventional stance on competition and monopolies. 

I love unconventional ideas. They get my juices flowing and I think learning from them can give you an edge because unconventional ideas can by nature help achieve unconventional outcomes. 

Here it is:

While most people traditionally hate and try to regulate monopolies, Thiel argues that monopolies are not necessarily detrimental. In fact, they are actually beneficial because they enable innovative companies to make long-term plans and invest in ambitious projects without worrying about competitive pressures. 

He points out that Google has an overwhelming dominance in the search engine market, which essentially makes it a monopoly. This status allows Google to generate enormous profits and reinvest them in innovative projects like autonomous cars and advanced AI research. Thiel argues that this kind of monopoly doesn't just benefit Google; it benefits society by funding ambitious projects that might not otherwise receive investment in a more competitive market with thinner margins.

If monopolies create positive disruption, that means that competition is overrated. In a perfectly competitive market no company earns an economic profit, which ultimately stifles innovation because companies are too busy competing on price or minor features rather than creating truly differentiated products. 

On the other hand, a monopoly can afford to think about the future, make substantial profits, and invest in new technologies or ideas.

So how does this apply to running business?

Striving to build a monopoly (or at least a dominant position in a specific market) should be a goal for startups and established businesses alike. This doesn't mean companies should engage in unethical practices to suppress competition, but rather they should aim to be so good at what they do that no other competitors can offer a close substitute.

Here are three key strategies Peter Thiel advises for becoming a monopoly in a specific niche:

  • Start Small and Monopolize: Begin by dominating a small market to establish strong brand recognition and customer loyalty before expanding into larger markets.
  • Innovate Uniquely: Develop a product or service that is significantly different and better than anything currently available, ensuring it is difficult for competitors to replicate.
  • Utilize Network Effects: Leverage network effects where the value of your product increases as more people use it, thus encouraging a self-reinforcing dominance in the market.

How does your company ensure that it becomes as dominant as possible in its niche?

Feel free to shoot me an e-mail with your thoughts at jmpwittig@gmail.com

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