Competition is for Losers with Peter Thiel (How to Start a Startup 2014: 5)

Summary

In this insightful talk, Peter Thiel emphasizes the importance of creating monopolies rather than engaging in competition, asserting that competition is for losers. Thiel, the co-founder of PayPal and Founders Fund, discusses the value of a business through the lens of creating value for the world and capturing a percentage of it. He critiques the common narratives that distort the nature of markets and stresses the significance of starting with small, niche markets to expand into larger monopolies, using examples from tech giants like Google, Amazon, and Facebook to illustrate his points.

Takeaways

• 🤝 Peter Thiel's central thesis is that businesses should aim for monopoly to avoid competition, as competition is for losers.
• 💡 A valuable company is defined by creating value (X dollars for the world) and capturing a fraction (Y% of X) of that value, with X and Y being independent variables.
• 📉 The airline industry, despite its size, is less profitable and valuable compared to Google's search engine, illustrating the difference between high-revenue and high-profit-margin businesses.
• 🧩 The dichotomy between perfect competition and monopoly is often misunderstood, with people lying about the nature of their businesses to avoid regulation or attract capital.
• 🚀 Startups should target small markets to achieve a monopoly and then expand, rather than starting with a large market which often leads to excessive competition.
• 💡 Monopolies are often created by having proprietary technology, network effects, economies of scale, and strong branding that can last over time.
• 🕊️ The tech industry has been successful financially because it tends to create monopoly-like businesses that can accumulate high cash reserves.
• 🌐 Software businesses are particularly adept at creating monopolies due to their low marginal costs and potential for rapid adoption and scaling.
• ⏳ The value of a business is heavily weighted towards its future cash flows, emphasizing the importance of durability and long-term success over short-term growth.
• 🔍 Thiel criticizes the lean startup methodology, suggesting that great companies often make a quantum leap with unique insights rather than iterating based on customer feedback.
• 💭 The talk concludes with a call to rethink competition, suggesting that it may be a psychological blind spot that leads people to pursue validation through competition rather than focusing on what is truly valuable.

Q & A

What is Peter Thiel's primary business strategy advice for entrepreneurs starting a company?

Peter Thiel advises entrepreneurs to aim for monopoly and avoid competition, suggesting that competition is for losers and that a valuable company is one that creates substantial value for the world and captures a significant fraction of that value.

Why does Peter Thiel believe that competition is not ideal for businesses?

Thiel argues that competition tends to reduce profit margins and can lead to a situation where companies are constantly fighting for survival rather than thriving, which is not conducive to creating long-term value.

According to the transcript, what is the simple formula that Peter Thiel suggests for determining the value of a business?

The formula Thiel suggests is that a valuable company is one that creates X dollars of value for the world and captures Y% of X, where X and Y are independent variables.

How does Peter Thiel compare the US airline industry with Google in terms of value creation and capture?

Thiel points out that while the US airline industry is larger in terms of revenue, Google captures a much larger fraction of the value it creates, which makes Google more valuable despite being smaller in terms of industry size.

What does Peter Thiel suggest about the nature of businesses in the world?

Thiel suggests a dichotomy where there are only two kinds of businesses: those that are perfectly competitive and those that are monopolies, with very little in between.

Why do monopolists and non-monopolists tend to lie about the nature of their businesses according to Peter Thiel?

Monopolists lie to avoid government regulation and non-monopolists lie to attract capital and differentiate themselves. These lies distort the true differences between businesses.

What is the counterintuitive idea Peter Thiel presents about starting a business?

Thiel suggests that startups should aim for small markets first, gain a monopoly in that niche, and then expand outwards, rather than targeting large markets from the beginning which often leads to excessive competition.

What are some characteristics of a successful monopoly business according to Peter Thiel?

Characteristics include proprietary technology that is significantly better than the competition, network effects, economies of scale, and strong branding that creates a unique place in consumers' minds.

Why does Peter Thiel emphasize the importance of being the 'last mover' in a market?

Being the last mover implies that a company has established a lasting monopoly that will not be easily disrupted by competitors, capturing the most value over time.

What does Peter Thiel suggest about the relationship between innovation and financial success in the history of science and technology?

Thiel suggests that many great innovations in both science and technology have not led to financial success for their creators due to the competitive nature of their fields, where the value created is often competed away.

What is Peter Thiel's view on the common business advice of iterating based on customer feedback?

Thiel is skeptical of the lean startup methodology that emphasizes iteration based on customer feedback, suggesting that great companies often make significant advancements by having a clear vision and not being overly influenced by immediate customer opinions.

How does Peter Thiel describe the psychological attraction to competition?

Thiel describes a deep psychological tendency for people to be attracted to competition as a form of validation, often leading to the pursuit of activities that many others are doing, which he suggests can be a sign of insanity rather than wisdom.