Peter Thiel believes that all happy companies have one thing in common. They create a monopoly by solving a problem that no one knew existed. Monopolies are a necessary part of progress, because the outsized profits associated with a monopoly are the only way to justify the huge risk. Here are Peter’s 4 characteristics of a monopoly:
- Proprietary Technology: You need a 10x improvement from anything else that currently exists. One full order of magnitude.
- Network Effects: Its more useful the more people that use it. Like Facebook.
- Economies of Scale: The company gets stronger with more sales. This is why it’s easier to create a monopoly with software than a service business. Great scale should be built into the original design.
- Branding: Think Apple.
When Steve Jobs came back to Apple, he slashed any product lines that he couldn’t see at least a 10x improvement. Don’t just improve on something that already exists, create something new. Just like all happy companies have one thing in common, all failed companies do as well. They failed to escape competition. My big takeaway is that any company can create their version of a creative monopoly if they focus on solving a problem that no one in their space knows exists -- If they focus on how to create an offering that is 10x better and different.