Zero to One, or how to create a monopoly business

3 minute read

I have recently read the book Zero to One by Peter Thiel and it really changed my overview on the business world, and the projects/products I want to work on from now.

The book focuses on building Paypal and the period it was built in, the dot com boom. We all know Paypal is now a successful company, and we maybe not know that they are one of the few who survived the boom in 2000. I was shocked to read that their first product was a Palm Pilot money transfer software. I’ve had a Palm, and although it was a cool device back then, the market wasn’t cohesive enough to support the product. But the underlying mission of Paypal was to change the way we transfer money between each other. Having Palm device as a prerequisite, although the niche was big enough, was not a good idea. So they switched to the email address money transfer, and we all know how that turned out.

For Paypal, or any company to succeed in the long run, the main prerequisite was to create a product or service that is either something innovative, like iTunes store, or something at least 10 times better than the competition. They also teach us that we have to start with a small niche, and build up from there. Unless you are old enough, you probably didn’t know that Amazon started as an online book reseller, and Paypal started as a merchant payment option for a small number of eBay top sellers. eBay (or Auction Web) started as a direct person-to-person auction site for collectibles. They all built great services, which were at least 10x better than the competition, or completely new, and started in small enough markets, where they had zero competition, so they could iterate and improve the products, before competition caught up what was happening.

There is also one great thing about small markets, and that is the fact that big fish can’t swim in small ponds. You as a small bootstrap company can live of a small enough market, and the big companies won’t even touch that market, because the market value is in the range of a statistical mistake on their yearly earning reports. And it’s a great place to innovate, improve and grow, till you can expand to another pond, after you have a monopoly in the first one.

We were all taught that competition is a good thing, even in economics class. And that highly competitive markets are the best option, for consumers, and for companies. That is a big fat lie, for both the consumers, and the companies. The companies in this kind of open market are in ruthless cutthroat battle for customers, and they have to lower their profits to the bare minimum, because if the competition is cheaper, the customer will go and buy their product, in a commodity market, price is one of the main attributes that guide the customer’s decision on buying.

Monopoly on the other hand, is a great thing. There are two types of monopoly, the economic one, which imposes its size and power over the market, buying or destroying all competitors, but that is not the one I’m talking about. The intellectual monopoly, the one created by innovation, or by having a 10x product, is the best position in the market. You have no competition, or they are scarce. The market is in pain, and your product can solve that pain. Tesla as an example, is a company who builds on of the best electric vehicles in the world. But they started with a roadster, a really cool looking roadster, which was a novelty item, but beat all of the brick-shaped electric vehicles when the hip green business people considered on buying an environmentally friendly car. I would buy the cool roadster over the brick shaped electric vehicle any day. Now Tesla also has 2 family cars, the best electric cars in the world. There is competition right now, but competition is at that state that Tesla had to open their patents, just for the sake of everyone else catching up to them. It is a monopoly if the competition isn’t competent enough to merely catch up with you, if not exceeding you, and overtaking the market.