10X Durability
I wrote about 10X Founders and 10X Markets previously and I wanted to explore what makes a company enduring and “Built to Last” to reference a famous Jim Collins book.
At GSV, we talk about People, Product, Potential, Predictability as our four investment tenants. A great founding team who builds a product that fits into a market need is the beginning of a great company. They also need to clearly create and protect their competitive advantage to become a sustained force over time.
When a 10X Team finds a 10X Market and they can create 10X Durability through competitive advantages built in their company is when a great startup becomes a transformative and valuable company.
There are two forms of this durability, or I’ll affectionately call them, two forms of monopoly — technology monopoly and culture monopoly.
Technology Monopoly
Companies that are technology monopolies have intellectual property in the forms of legal protections (patents, copyrights, etc.) or people protections (trade secrets, expertise).
Many of the original technology discoveries originate out of research universities (Stanford), innovation labs (PARC), or tinkering and the team builds up its IP over time both on the legal side and on the people side. IP always starts with people. As a startup, I think it’s important to ask yourself the question “what IP am I building here?”
Technology monopoly is defensible but requires constant vigilance. As Andy Grove famously quipped:
Technology monopolies can run for a long time, but they can be threaten by each successive generation of technology. IBM didn’t win the personal computer market, Microsoft didn’t see the Internet coming, etc.
Is Google a technology monopoly? They sure seem like one, but it is conceivable that a product comes along built on artificial intelligence could let people ask a question and find a direct answer without ever having to go through a search portal, the foundation of Google. Of course, Google knows this and is trying to diversify like crazy into both existing markets and moonshot projects via Google X.
Is Tesla a technology monopoly? They actually gave out their patents for free, but their supply chain and scale of the Gigafactory lets them compete on a different level. Having Elon Musk is also a large competitive advantage, but that’s only protectable for so long.
Trying to be a technology monopoly is easier in the beginning but gets tougher over time as technology doesn’t like to stay bottled up. Trying to be a cultural monopoly is hard in the beginning as the company is slowly earning trust from users or change the way people do something, but it is much more sticky.
Culture Monopoly
Cultural startups begin usually with the founders having an insight on using existing technology to lower the friction for things we already do or to take something done in analog form and transplant it into digital form.
Facebook digitalized the entire act of socializing. Twitter digitalized chatting and writing.
Cultural startups also create new markets and change the way we do things. Airbnb changed the way we travel and stay. Lyft changed the way we get around to places.
The social network that these companies have built is fundamental to their competitive advantage. Leaders in a category gain a disproportionate share because as more people use their platform, it becomes more useful, which induces more people to use the platform.
Even Yahoo, a shadow of its former self, is an example of cultural monopoly that surprisingly still has a huge hold on people’s mind share for anyone who was active online in the late 1990s and early 2000s. People track their stocks on Yahoo, have their emails on Yahoo, read news they care personally about on Yahoo. A part of their social lives is hosted on Yahoo which makes switching painful.
It turns out that:
The killer app of the Internet is people.
Once a company captures people’s habits, information, and/or relationships with other people, it starts to build stickiness (switching costs) and the protective advantage to retain a strong position.
10X Founders and 10X Markets create a rocketship, but to create long term business value, a company needs to have a technology or culture moat around it that is difficult to breach.
10X Durable Companies are Technological or Cultural Monopolies.
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