Competition: What tiny market are your dominating?
Business is about creating and capturing value. Very competitive airline industry is a classic example, the ability to travel across continents is invaluable, but airlines ability to capture profits is negligible.
“What important truth do very few people agree with you on?” Asks investor Peter Thiel. What disruptive ground breaking product – service is no one creating at the moment? How do you go from nothing to a radical market dominating innovation? When is a monopoly a good thing?
The next East African equivalent of [born in Africa] Elon Musk won’t be building an electric car company. The next Bill Gates will not create an operating system. And the next Sam Altman will not be focusing on artificial intelligence.
Thinking for yourself is not about copying, doing a ‘cut and paste’ from past innovations. Or, working from the one of thousands of business frameworks, hammered together from forests of past dried out thinking.
Tired of ‘cut and paste’ thinking? What is the next big thing? And do you work towards it? How does one build the future? Think of a simple graph with a horizontal X and a vertical Y axis. Thiel looks at future of progress on the lateral X axis as incremental, copying things that already work.
An evolution of gradual change, tweaking, tinkering, making companies and their products just that little bit better. Easy to imagine, as we know what this repetition and replication looks like.
Contrarian thinker, Peter Thiel published his book Zero to One a decade ago in 2014. Zero to one occurs on the vertical Y axis – going from nothing to the next innovative breakthrough. Doing something new, that no one thought about.
Thiel, the cofounder of PayPal and Palantir, was the first outside investor in Facebook, and an early investor in SpaceX and LinkedIn.
Is perfect competition flawed?
Economists apply simple models: perfect competition and a monopoly. We eulogise perfect competition and tend to think a monopoly is bad thing.
Business is about creating and capturing value. Very competitive airline industry is a classic example, the ability to travel across continents is invaluable, but airlines ability to capture profits is negligible.
Thiel argues that in an environment of perfect competition that economists love so much of the profits are competed away.
In contrast, Thiel suggests the preferred route of travel to go from zero to one is to aim to create a monopoly. Push the pause button, this is where it is easy to get off track.
By monopoly he does not mean a company that deviously eliminates, and bullies rivals or has some licence from the government to artificially dominate a sector.
By monopoly he means “the kind of company that is so good at what it does, that no other firm can offer a close substitute.” In other words, so unusual in the product offering that it dominates a profitable free market – and just can’t be ignored.
Thiel sees capitalism and competition as two different things. “Capitalism is premised on the accumulation of capital, but under competition all profits get competed away.
The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business,” writes Thiel.
But do these wonderful monopoly businesses really exist? Or are they like friendly dragons, and wizards in Harry Potter books, just made-up business mythology?
Chances are you may have used one of the monopolies in the last hour. Google is the prime example, a company that went from zero to one. According to Forbes, “Google earnings top estimates with $24 billion, in Q2, a 3-month period from April to June this year.”
Google’s algorithm probably decides what ads you see and influences what programmes you watch.
Closer home, another example of a ‘monopoly’ we all love, that has just plain made life and business easier, having had a tangible influence on Kenya’s economic development is based on zeros and one digital technology.
You know the money transfer mechanism that has made Kenya a world leader, an innovation that did not come from a traditional bank.
Some 42.4 percent of Safaricom’s annual revenue, for year ending March 2024 came from M-Pesa, where revenues from M-Pesa grew 20 percent year-on-year, reaching $1 billion (Sh140 billion).
So perhaps, monopolies are not all bad.Yet, it’s still a free market, with M-Pesa holding a 96.5 percent market share in the mobile money space. Airtel Money comes in second at 3.4 percent, while Telkom Kenya's T-Kash holds 0.1 percent.
Forget first mover, or second mover advantage. Ideal is to have last mover advantage, having such a superb unusual unique product that no one can come close.
True to his challenge to follow not the ‘same old’ obvious often tedious conventional thinking, Thiel advises that to begin the journey to a zero to one status begins by dominating a tiny market.
If you think the market is too big it probably is. By small he really means it. Facebook began in a Harvard University dorm room targeting users in the tens, then hundreds. Today Facebook has 2.9 billion active monthly users in a world of 8.1 billion people.
“Inspiration is perishable - act on it immediately. Be impatient in actions, patient with results,” advises Silicon Valley wise wizard, Naval Ravikant.
