How to Create A Successful Company with Peter Thiel

Peter Thiel

Peter Thiel is a German-American billionaire entrepreneur and venture capitalist. A co-founder of PayPal, Palantir Technologies, and Founders Fund, he was the first outside investor in Facebook and an early in. This guy must have done something right to get to the place he is currently in. This article will highlight different strands of his philosophy for success as an entrepreneur.

1. Aim for a Monopoly

As you know a monopoly is meant when your company takes a large part of the market share, this usually happens because you have are the only one in the market, you have the best product functionality, or you are the desired brand in your space. Right now you might be scrambling to think of any monopolies since Microsoft in the 90s. The reason this happens is that all companies reframe their company so they don’t appear like a monopoly.

A company like Google is a monopoly, but how they express their ownership of the market very differently from how it is. Even though Google owns 66% of the search engine market. They would distort what they are doing to appear smaller. Instead of being just a search engine, they are competing with other autonomous vehicle companies, they are competing with Apple for phones and computers, and they say that they are a technology company competing in a massive market. After reading that you are thinking that Google is this company that is coming across the competition in every direction they look and they are not the monopoly that should be regulated by the government end of the story.

Now if you think on the flip side, restaurant owners looking for money from investors tell the story of “we are the only {insert nationality} cuisine in {insert city}” For example “We are the only Vietnamese cuisine in Hamilton.” The only reason that “value add” would work is if there are people in Hamilton who will only eat Vietnamese food. There are so many competitors in the restaurant space taking a piece of the pie from everyone around them that eventually there are not enough pieces to go around to keep people afloat.

2. How to achieve a monopoly

As unintuitive as this sounds it increases your chances of success. The problem with entering a big market is that there is a lot of competition making it difficult to differentiate yourself from other people and by default implies you do not have a value add that a consumer can’t get anywhere else.

When you enter a small market your future competitors don’t think that you have the potential to be competition because your initial market is so small. If you take the example of Amazon, Jeff Bezos started with a bookstore that has allowed you to buy books from the comfort of your home (which was not an option before). Over time it expands into other areas of e-commerce and is now your one-stop shop for anything you want.

I look at eBay you had a similar process, they started with Pez dispensers, then beanie babies, and eventually becomes an auction site where people sell their goods to other people. Facebook also started with a small market. Their initial target market was 10,000 Harvard students. In 10 days, they were able to reach a 60% penetration. Through this quick adaptation, they have a consumer base which they can start building out their brand as they the foundation of active customers.

If we look on the opposite side of the spectrum. In 2005 during the cleantech era in silicon valley, companies entered the market in mass amounts, but did not know their competitive advantage over others because there were so many companies were entering and so many already in it that most companies did not have an awareness of all the companies in their space. If you don’t know what others are doing you can’t have a competitive advantage in any way.

Even though it possible for you to become a giant in an industry with a lot of competitors it does not minimize your chances of success. TikTok (the rebrand of music.ly) came out of nowhere and is now a significant competitor to Facebook, Snapchat, and Instagram (owned by Facebook). Their process was different most (so they are still somewhat reinventing). They started in China, which has blocked the majority of social media platforms including Facebook, Twitter, Instagram, Snapchat, YouTube, and many others. They start with the most difficult place and then expanded to other countries which give a much easier time than China.

When trying to disrupt an industry, you need to provide a much better value add than current competitors on the market. One of the ways to have a monopoly is through good branding like how coca-cola might not be the best pop drink but people drink it because of the brand. Assuming that you are not entering a market like the soft drink industry there are current problems that consumers face with the creative product that you can fix. When you fix a problem you are providing a product that is significantly better than what already exists and that is what initially attracts people to your product or brand.

For example, Paypal was registering online transactions on your bank account more than 10x times faster than eBay (a couple of hours vs 10 days). Take Apple, when they had working smartphones which are more desirable than flip phones. The initial improvement from the previous product gives you the defining edge that gets people to start using your product.

In step 2 when you disrupt current leaders you want to make sure that no one can do that to you. If you are the current market leader that means that nobody else has managed to create a better product than you. Sometimes companies believe that they will stay market leader with slow innovation, but it never works out that way.

When IBM was the leader of the computer industry, but as a company, their culture was very risk-averse so their innovation was very slow and commonly marginal. When Apple created its MacOS it slowly started gaining traction and became the market leader. Overtime as Apple continues to build their brand and product they are now in a situation where no one can overtake them as the market leader due to how far ahead they are compared to existing companies.

3. Don’t Compete

People often misinterpret competition for an opportunity. Even though it is true you can enter a massive market and aim to acquire only a small piece of the pie and you still come out cash positive. When you think back to the idea of a monopoly, the goal is to create a long-lasting business, not a short-term one. When you are competing with others it is very difficult to differentiate yourself from other people. You don’t want to be the 50th SaaS company in Ohio, the 20th clean energy company in Toronto, or the 10th project management software company. The problem with the examples mentioned is that by default you put yourself in a market category with many competitors that also implies that you are “another one of those” giving you no visible initial value.

Psychologically the reason people compete against each other is that it reassures you that you are doing the right thing. When you compete in school it seems that the only thing that matters in the world is your grades. When you compete in your workplace you think that number of billable hours you have is more important than your output. When people compete in the same industry you think it is more important to be marginally better than your competitors instead of creating a product that improves the lives of your consumers.

When Henry Kissinger describes the faculty at Harvard. He mentioned that people were ferocious because the stakes were small. When it is difficult to separate yourself from others, you have to find a way to be different which usually ends up through stories rather than objective truth.

As you are competing for these marginal gains you often reach a point of diminishing returns because you are trying to optimize/improve something that can only be improved marginally. The way to find to gain a competitive advantage is to reinvent the wheel and do it so much better than everyone else (of course easier said than done) or you could find a different market.

4. Create Vertical Not Horizontal Progress.

If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.” — Peter Thiel

With horizontal progress, you are copying others (what already exists) and thereby competing. As a result, there are fewer pieces of the pie that you can take. If you make vertical progress, you are differentiating yourself from others. If there is no one to compete with you, then you have no one taking your profits.

“The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.” — Peter Thiel

Through this statement, he describes how every moment happens once. The goal is to describe that every great person that we know today is known because they reinvented the world as we see it. Nobody needs a new operating system, nobody needs another Google, people don’t need another social network. To learn from these people means to take the way that they think, perceive the world, and rethink what is possible to change how the world works.

This idea follows a vertical change, not a horizontal one. Of course, it’s easier to copy a model than to make something new, but by doing new you maximize your possibility to succeed in the business sense.

5. Solve a Problem

With so much hype nowadays on entrepreneurship and abandoning the 9 to 5 life. Many people become entrepreneurs to be entrepreneurs, but they never end up solving a problem. If you never solve an actual problem/have an important utility you can’t get anywhere, your chances of having a successful company go down.

6. Being a contraction is important for unconventional success

The following is an interview question that Peter Thiel asks people: “What is something you believe that few people agree with.”This question is an incredibly difficult question to answer and is probably one of the best ways to quickly evaluate people by allowing you to see the way people think.

Normally, we learn concepts and ideas that we are all meant to agree on. Having a question that asks for disagreement, makes it difficult for you to come up with an answer because most don’t think in that way. By seeing the ideas they have, one can see how much of a contrarian someone is.

Being a contrarian is extremely useful because when you are reinventing the wheel you will have many people telling you that you are crazy, that you can’t do it, that is impossible. Well if you don’t have any ideas that contradict what everyone else thinks, are they your thoughts? By that logic, if you are not an independent thinker then how can you reinvent the wheel and fundamentally change an industry for the better.

16 yo TKS innovate wanting to give value to other people

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store