Everyone wants to build the next big thing. People motivated with an idea will build products thinking everyone will like it. It will probably be inspired from another product seen before. If you're lucky or good at marketing you'll get some traction and maybe even build a business out of it. But most products will not catch on because it's yet another product people don't care about. The world doesn't need the next Tinder, Uber, Facebook or Snapchat. It's easier copying ideas that coming up with new ones. The next Bill Gates will not build an operating system.
Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1.
In this article I will summarize some principles from the book Zero to One by Peter Thiel.
The book starts with the question:
"What important truth do very few people agree with you on?"
If you ask this to different people you'll find one thing in common: Almost all humans have similar ideas. From similar ideas, similar products arise. It's no coincidence that the great idea you have is probably already built. There are two kinds of progress:
- Vertical progress: A new revolutionary idea that didn't exist before. Going from zero to one.
- Horizontal progress: Extending existing ideas and innovations. Going from one to n.
Copying other products or ideas, changing it a little bit and marketing it as a new product will take the world from one to n. You have to think different than anyone else. Disagree with products, concepts and ideas other people have. Come up with something crazy that you believe will take the world from zero to one. There are still a lot of secrets not discovered waiting in the future. Chase these secrets.
Want to create a succesfull company? Here are seven questions that construct a successful company according to Thiel:
- The Engineering question: Can you create breakthrough technology instead of incremental improvements?
- The Timing Question: Is now the right time to start your particular business?
- The monopoly question: Are starting with a big share from a small market?
- The people question: Do you have the right team?
- The distribution question: Do you have a way to deliver your product?
- The durability question: Will your market position be defensible 10 and 20 years into the future?
- The secret question: Have you identified a unique opportunity that others don’t see?
Businesses that don't have great answers to these 7 questions will probably fail.
Selling your product
Having a great, unique product only means something if you can sell it to someone else. Having the greatest product means nothing if nobody knows about it. You need good distribution channel for your products. Thinking that a good product sells itself is a danger for the business.
Analytics can help to determine the CLV (Customer Lifetime Value). Every new customer has to cost less than the CLV in order to be profitable. Every business and every product have a different way of selling.
People link the world monopoly to a negative idea. They think about a company that unfairly kills competition. But according to Thiel it's not necessary a bad thing.
Creating a monopoly is central in this book. A monopoly means you have the best product in the market nobody else can come close to. Competition needs to be innovative and come up with a greater product than you do in order to compete. It fires innovation which is in turn better for the customer. If you don't create an monopoly for the market you're in, you'll compete for pennies on the dollar.
Characteristics of a monopoly
- Proprietary Technology: The technology a monopoly has must be at least 10 times better than the competition.
- Network Effect: Start with a niche market. You'll never reap the network effects if your product is not valuable to your first users. Facebook started as a social media network for just students in Harvard.
- The economy of scale: A bakery has fixed costs and can only x breads per day. A software company doesn't have this problem. Every next copy costs nearly to zero to distribute. The foundation of your business must have the potential for economy of scale.
- Excellent Branding: Take Apple for example, the strongest tech brand today. Copying Apple products will not work because a part of the success of Apple comes from the brand.
Google, Apple, Amazon and Facebook are all monoplies. Acknowledging that they are a monopoly would only hurt them. They reap the rewards of being a monopoly while staying under the hood. The common excuse they give is that they're part of a bigger market.
Having a successful business is not dependent on luck. The book is full of great advice on how to build a successful company. There is no magic formula. Be original, start with a niche and try to gain a monopoly in your market. Only when you have a monopoly in one niche move to the next one. Building a healthy business can take years. Do everything one step at a time.