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Thanks for nothing, Peter Thiel

false useless mountain

I’m on a contrarian kick right now.

Peter Thiel recently released a book titled “Zero to One” about “Monopoly Theory”, in which he postulates that “If you’re starting a company, you always want to aim for monopoly, and you want to always avoid competition,” and I want to convince you that this, like most business talk, is false and useless doctrine.

Peter’s points:

  1. Peter argues that if you’re going to try to start a business, you should try to start a monopoly, like Google or Facebook or Microsoft.
  2. In the first pages of the book, he states that if you’re going to start a monopoly, you can’t copy other businesses, because the guys that started Google, Facebook, and Microsoft didn’t copy anyone. He gave a presentation at Stanford titled “Competition is for Losers” with the same idea.

This is a garbage heap. Here’s why:

1. “Start a monopoly” is probably the most useless piece of business advice I’ve heard so far. Of course it would be great to start a monopoly. But did anyone who has ever started one begin by thinking “I’m going to start a monopoly”?

  • Facebook – Mark Zuckerberg said in an interview with Paul Graham, “I was working on this Facebook thing for Harvard, and I really was excited about it because I wanted to use it, but at the same time I thought that, over time, someone would definitely go built a version of this for the world. But it wasn’t going to be us, it was going to be Microsoft, or someone who built software for hundreds of millions of people.” (9:57 – 10:37)
  • Google – originally the founders’ big aspiration was to build Google and then sell it for $1M.
  • Microsoft – Bill Gates said in an interview, “we were very focused on the here and now… We never thought how big we’d be.”

2. None of these companies started in a competition-free environment.

  • Facebook – anyone remember Myspace?
  • Google – there were already at least 13 major search engines when Google launched (Yahoo, AltaVista, AskJeeves, etc.).
  • Microsoft – plenty of software companies existed at the time.

These companies became monopolies over the years by making smart decisions, but not one of them began with that goal in mind.

Peter’s “build a monopoly” talk is the kind of advice that wastes a lot of peoples’ time, because it sounds great – owning a monopoly would be great, duh – but it’s completely unactionable. And it’s not true! The people who have been able to achieve monopoly status weren’t trying to early on, all they were trying to do was make something great.

So thanks for adding more logs to the already huge bonfire of useless business talk, Peter Thiel. I bet you’ve successfully persuaded thousands of people to waste significant time and money following advice that has never worked for anyone. Iatrogenesis at its finest.

So what are we to do? What model do successful businesses follow? Here’s a pattern I’m beginning to notice more and more:

  1. Someone wanted something.
  2. They built it.
  3. They offered it to other people.

That’s a model that seems to work pretty often.

 

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  • Dallen

    OK, I’ll take the bait. 😉

    I think the discrepancy here is the definition of the word ‘monopoly.’ Thiel’s whole premise is that a monopoly doesn’t mean there is one market player – (this is economically impossible w/o some sort of government enforcement). His point is that there are highly defensible niches within a market that a startup can gain a beach head, and scale from there. It’s actually a very useful framework.

    Facebook: became a monopoly by becoming the social network of choice in very small niches – college campuses. Critical mass was easier to hit in a smaller, denser markets that were more prone to agglomeration.

    Ebay: became a monopoly by becoming the marketplace for collectors. This critical mass later scaled to larger and larger markets.

    Paypal: Became the payment method of choice by eBay powersellers, achieved critical mass (“monopoly”) in that more limited sense, and grew from there.

    Microsoft: became a monopoly by being one of the first hardware-agnostic operating systems in the world, and securing a non-exclusive distribution deal with IBM. At the time, personal computers would have been a relatively niche-sized market. (Also, there actually weren’t any other software companies that existed at the time. Microsoft was the first true software company!)

    Uber: was one of the first ride services that realized you could essentially ignore curb-side pickup regulations, and embrace the ‘gypsy cab’ model. Since other cab/car services were less likely to ignore regulation wholesale, Uber was able to grab a defensible advantage and ride it to their current ridiculous valuation.

    That’s all I have time for, but I think you should give Peter Thiel’s book another chance. I also highly recommend the podcast Thiel and Ben Horowitz did a few weeks ago on A16Z.

    • Jeff Schwarting

      Dallen, thanks for the comment, I agree with your points. I talk to a lot of people who want to start businesses but haven’t yet, and that’s where I see the iatrogenesis of Peter’s preaching to be most pernicious, because those people will read his book, and, instead of starting a company they can actually start, they’ll try to find a monopoly idea instead, which will likely lead to wasted time and money and ultimately, failed dreams and real jobs :)

      I appreciate the discussion! Thanks for stopping by!

    • Daniel Falabella

      Very interesting comment. But even you mentioned that those companies “became a monopoly.” It seems like none of them started with the thought: “I’m going to start a monopoly.”

      Thanks for a healthy conversation!

      • Dallen

        I don’t think Thiel ever suggests you should start a company with the intent to become a “monopoly.” All he is saying is “find a niche” – and that is very sound business advice.

        • Daniel Falabella

          “If you’re starting a company, you always want to aim for monopoly, and you want to always avoid competition.”