Only Monopolies Win

I’d like to document the basic tenet of startups.

For any given point problem, at a given point in time/technology, there can only be one optimal way to solve the problem. (Just take my word on this one)

For some problems, optimal solutions are achieved through relatively easy means, and in other cases, not so. Some examples of easy optimal solutions:

• A good location (for stores/restaurants/delivery businesses)
• Low-cost workers (for manufacturing/BPOs etc.)
• Aggregation of existing information or APIs (Think price comparison sites etc.)

The reality is — these can be replicated relatively easily by a competitor.

However, if optimality is achieved through a more complex play, is usually difficult to replicate:

• Complex algorithms or patented technology
• Network effect (or sometimes stickiness/resistance to switch on a very large user base)
• Brand Impact

Let me provide some examples — 
Algorithms/Tech + Network Effects: Google, Uber Pool, Whatsapp messenger
Stickiness + Network Effects: Facebook app install advertising (specifically, install attribution)
Brand: The Apple iPad/iTunes store

These companies would be worth less (or worthless, in some cases) if their solutions could be replicated easily. I’m watching Uber closely: Uber’s technology advantage is minimal, but network effects have kicked in to fortify the technology. However, others like Lyft, Didi, Ola are able to build networks as well.

If you’re a startup solving a point problem, and you aren’t a monopoly through a ‘complex’ method, be assured: tens of companies out there will replicate your solution, drag margins down, and devalue your business rapidly.

The idea, as always, is to be brutally honest about your technology and other capabilities, and not fall for the founder delusion (Secret: Data).

EDIT: Business leaders in my network believe that Network Effects are what constitute the most defensible monopoly — while algorithms, stickiness and brand value can come through network effects. I’m convinced.

P.S: Keep an eye on/believe in the dark horse — “Status quo mentality” in a large user base. This is bigger than one would believe, especially in B2B. 
P.P.S: Part of this thinking is directly from Peter Thiel. I see proof of it everywhere.