Zero to one in Peter Thiels eyes is the act of making a quantum leap or banking on a contrarian truth that eventually pans out once the world catches up, a quote often (mis)attributed to Henry Ford but with no record of him ever saying it is ““If I had asked people what they wanted, they would have said faster horses.” the quote is taken to mean that had Ford not seen the the opportunity for the adoption of the “Model T” particularly in terms of making it a mass market product, its like the history of the automobile would have gone in a very different way.
Competition is for losers….
Building a monopoly might not be for everyone, Peter Thiel is a hard act to follow, not everyone ends up starting a household name like PayPal, but is there a monopolistic mindset that can be adopted even if you are in a fragmented market with stiff competition? I think the key here is to “avoid competition”, unfortunately more often that not in Sri Lanka we see something that I like call the “appa kade syndrome” (Hopper shop syndrome) or “copycat capitalism” if you prefer, the reason I call it that is purely anecdotal to me, about a 100m from where I live there is was can be described as a “mini junction” of sorts, where there are a few prominent local businesses such as the main bakery for the area, a clinic and a few grocery stores including a vegetable seller, some time ago, a Hopper shop opened up with much fanfare and it started attracting not only area residents but commuters driving buy, the shop was doing so well that it obviously motivated the vegetable seller in the area to stop selling vegetables and open his own Hopper shop, there was even talk that he had tried to poach the original shops Hopper maker!
As both shops competed for business, you could immediately see the quality of the original shop dropping, corners were cut to reduce costs as the 2nd shop started gaining traction. Within a year a 3rd Hopper shop had opened about 50m away from the junction, it wasn't even a shop front rather a window open to the road that sold directly from the owners kitchen. What transpired over the next 6 months was a race to the bottom, needless to say it ended pretty much like anyone would have expected, our “mini junction” went from 1 hopper store, to 2 to 3 and eventually to zero because no one able to compete given the commoditized nature of a staple like Hoppers, as competition increased the only way each store owner tried to compete was to sell cheaper, but the quality of their product was such that hardly anyone became a repeat customer, the 3 shops also didn't have much by way of other offerings, nobody tried sufficiently to differentiate and nobody bothered trying to build a brand or name for themselves.
Ideally one of those shop owners should have identified the merits of maybe putting a ice cream and/or dessert shop or even a different food option like Kottu, making use of the footfall and attention the original Hopper shop generated.
The Four Key ways to to avoid competition according to Peter Thiel
- Branding — A distinctive set of perceptions that consumers have about a company leading to loyalty and repeat usage
- Innovation/Technology — Proprietary technology that is at least 10X better than the competition (probably not the most doable think with a Hopper store)
- Network effects — Taking Facebook or Instagram as examples, even if a better social network startup came along, you would probably not find enough of your friends on it to justify a switch!
- Economies of scale — Large volumes result is low average cost per unit, that a high barrier to entry for usurpers
The PayPal Mafia
The original Team that was involved in creating PayPal, which was eventually sold to Ebay for 1.5Bn USD, went on to found a host of prominent startups such as Youtube, LinkedIn and Yelp. What was the conducive environment at PayPal that acted as a ramp for these Founders to create even more value after they left PayPal?
Was there something in the water filters at PayPal or was it something else, the power of small groups of people bound together by a sense of mission or purpose can be extremely powerful,, unfortunately the same can been applied negatively as well, one of the great quotes from the book is “In the most dysfunctional organizations, signaling that work is being done becomes a better strategy for career advancement than actually doing work” we see this so often in the corporate world, I’ve personally experienced scenarios where a person fulfilling the role of a gatekeeper of sorts has said “No” to literally any idea, suggestion or initiative that has come their way or been referred to them as part of a broader discussion, the reason they did this was a form of self preservation, a signaling that by saying “no” they were somehow doing their job as gatekeeper.
The key to creating PayPal's success was the organizational culture, Peter Thiel thinks “It is better to risk boldness than triviality” and that attitude of constantly challenging the status quo allow the team of tell. Too often in the Sri Lankan corporate world we hear people talking about being “Lean & Mean”, but there's no point being a smaller outfit than your competition if you have none of the advantages of being a small organization, if you are bureaucratic with your decision-making rather than swift and agile, or if you cannot adapt to a fast changing environment despite being a small group of people you might as well go for a “safety in numbers” strategy instead!
The contrarian question
A question that Peter Thiel asks during interviews is “What important truth do very few people agree with you on” he relates this to the way behaviors tend to change in the future, for example, Steve Jobs believed the future of mobile phones was in all screen touch phones as opposed to the prevailing view of the time, — no doubt bolstered by how well companies like Blackberry was doing — that mobile phones needed a keyboard, there's even a video of Microsofts CEO at the time Steve Ballmer laughing off the iPhone because it wasn't geared for business users since it didn't have a keyboard.
Looking at the Sri Lankan context specifically it’s hard to find businesses focused on “contrarian truths” lying in plain sight, I think that most Sri Lankan corporates for the most part still operate within the confines of the convectional, even some of the more prominent startups in the country usually spotted a global trend that was already gaining transaction and customized it to succeed in Sri Lanka, while I’m certain that there companies operating in the fringes focusing on “contrarian truths” unfortunately I have not yet heard of them. (Please do let me know any examples in the comments)
The power of the contrarian truth ideology in business is that it you can operate in stealth mode, ignored by the incumbent leaders in that particular segment, while R&D has certainly gained much wider traction and respect in modern business, identifying innovations that can disrupt markets can be much harder to call, no example better epitomizes this that when Kodak engineer Steven Sasson invented the first digital camera in 1975 yet Kodak never fully appreciated what they had created and is now not even a husk of its former self today.
When Blake Masters first wrote his Stanford class notes which subsequently got condensed to become the book he co-wrote with Peter Thiel, I doubt he realized what kind of impact the book would have, partiality to would be founders and entrepreneurs, I’m capable of giving no higher praise than to say that despite being 7 years since being published the book has aged tremendously well and I highly recommend that you give it a read, there are still great nuggets and insights applicable to this day and like all great books there will be something that resonates with people a little differently, going from Zero to One isn't has easy at is sounds but Thiel certainly provides plenty of great advice to get there!
**Cover image By Andre Gunawan/“Tech in Asia” https://www.techinasia.com