3 tips for startup success

Bet on a contrarian truth

May 21, 2023

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Peter Thiel co-founded PayPal and sold it to eBay for $1.5bn. The original members of Peter’s team at PayPal went on to setup LinkedIn, Yelp and YouTube. These hugely successful businesses changed the way we use the internet. In his book, Zero to One, Peter shares many counterintuitive insights on how to achieve startup success, including:

Bet on a contrarian truth
Start by dominating a small market
Strive to be a monopoly

1. Bet on a contrarian truth

You will get rich by giving society what it wants but does not yet know how to get. At scale. - Naval Ravikant

Start by answering the question: What important truth do very few people agree with you on? Airbnb’s founders answer was that, people would be willing to pay to stay in a stranger’s house. Few believed this contrarian truth. Steve Jobs had a vision for a smart mobile device without a physical keyboard. Few agreed it would be desirable.

Visionary answers to the contrarian question posit how people will likely act in the future. How to Find Counterintuitive Solutions explores how to do this. Betting a business on a contrarian truth means competition can be largely avoided because few will take the idea seriously. We will be ignored long enough by potential competitors to establish a significant lead in the market.

By their nature, contrarian truths are hard to spot and can be called early, i.e. before their time. How to Create a Hit Product explores how to get the balance right between novelty and familiarity.

2. Start by dominating a small market

Once you create and dominate a niche market then you should gradually expand into related and slightly broader markets. Amazon shows how it can be done. Jeff Bezos’s founding vision was to dominate all of online retail, but he very deliberately started with books. - Peter Thiel

To create a big business, start by dominating a small market. Rather than trying to get 1% of a large market, get 80% of a small one. Whoever first dominates the most important segment of a market with viral potential will be the last mover in the whole market.

Jeff Bezos started Amazon with a vision to create the everything store, but did not build that at the start. Instead, he focused on dominating a niche market, online book sales. This was a great market to start with as books are easy to distribute and readers typically have high a disposable income. Amazon next dominated the adjacent online CD and DVD markets, on route to becoming the everything store, we know today.

3. Strive to be a monopoly

Many see competition as a really good thing. However, businesses in competitive markets are destined to go out of business, sooner or later. Being a monopoly, such as Google in search, helps ensure profitability and longevity.

There are 4 ways to become a monopoly and secure a high profit margin:

Brand association: Be the first (and only) brand people consider in a market. When we think of fashionable consumer electronic devices, we think Apple. Branding Our Apps examines how to establish a valuable brand.
Proprietary technology: Google’s algorithms are proprietary and considered 10x better than Bing or other competitors.
Network effects: People use Facebook because their friends are on it, not because it’s the best social media platform. Network Effects - Growing Pains explores the situation where a product becomes more valuable as user numbers grow.
Economies of scale: Amazon can offer free distribution, due to it’s infrastructure and sales volume. Here’s What Jeff Bezos Taught Me about his approach to business.