The Monopoly Mindset

If you have read Peter Thiel’s book Zero to One, or listened to him talk about contrarian views, you will be familiar with his take on what he terms Creative Monopolies. These are not monopolies that are state supported bullies that control the market, but instead companies that are so good at what they do that no other firm can offer a close substitute. This is what companies should be aiming for.

I agree with this view, from an efficiency and value exchange perspective. Monopolies are good for the world, if they continue to influence it in a positive way. This article explains why and sets out a proposed way of thinking that lends itself to building a company with the potential of becoming a monopoly.

For a company to become a monopoly and maintain this status, based on value alone, it must exist in a way that is hyper efficient. It must maximise the value it provides to it’s customers at an optimal cost that means there is no room for another company to solve the same problem in a way that more optimal, or at a lower cost. All decisions must be made to maintain the balance between value to customer and value to business, to ensure there is not a gap open for long enough for another company to sprout up and grow.

This requires a very solid foundation, one that is built on fundamental truths about people, where the world is heading and a unique proposition that is and will continue to be highly valuable.

This doesn’t come from doing something slightly better, or applying a new business model to a different industry. It comes from a series of unique experiences from one or more people (founders), who come together and can work in a way that ensure truths are the foundations that their company is built on.

A fundamental truth can be described as the underlying reason why something exists or behaves in a particular way. Laws of physics, for example, are fundamental truths. Mechanisms of the brain and body, or principles of human behaviour could also be considered fundamental truths for describing many of the actions we take on a daily basis.

I’m a firm believer that everything can be learnt, and I don’t think coming up with ideas that develop into billion dollar companies is any exception. It’s not for everyone, I agree with that, but it could be for more people if they were taught to think in the way that lends itself to starting with ideas built on fundamental truths and real value creation. Here is my high level view on an approach that lends itself to building a company that has an optimal value exchange model, the grounds for a creative monopoly:

1. Train yourself to start thinking in fundamental truths or first principles. When you observe something about the world, try to understand the fundamental drivers behind why it works in that way. What is really happening. If you can do this for a period of time, you will start to notice consistencies which you can attribute to a fundamental truth (for people, the world, the universe etc). Here is one to think about. Decentralisation. It has been creeping into our lives at an increasing rate. It started with peer-to-peer platforms, for money (Paypal, crowdfunding), goods (Amazon), services (Airbnb and uber), and now blockchain applications, providing much more decentralised solutions. What are the fundamental truths for people that make decentralisation valuable? What have we lost or gained over the last 5, 10, 20 years that’s driving the trend? How can you use your understanding of the fundamental truths that sit behind this shift to build a valuable product?
2. Learning to communicate the value of your product and company in a compelling way, so people so your target market can understand the value, is the next evolution for turning an idea into a reality. This can be hard when you are doing something new that requires a significant behaviour or belief change. Usually it requires finding the niche of people who have the problem the most, and/or have a similar philosophy. They will understand the value behind the concept the fastest, and provide the feedback and revenue you need to develop and market the idea so it becomes valuable for a wider audience.
3. Once you find the fundamental problem you’re committed to solving and you start building a company, relentlessly focus on optimising value. This starts with understanding who your target market is, what they value most and focusing on building a solution using the minimum amount of resources to build the maximum amount of value. Less resources and more value means you have more of a “value margin”, which can be reinvested in making the product and company more valuable. You can read more about this value exchange relationship here. I’ve written an extensive article on it.
4. When you get the value exchange right you will grow, significantly. This is product-market fit. My experience ends here, as I’m currently still working on product-market fit with our company, and the companies I work with. But, from observing others and spending time in larger corporations, the challenge that comes with fast growth is continuing to make decisions that optimise the value exchange relationship by not wasting money on structures, projects, new ideas and people that don’t add maximum value to your customers and business. This includes attracting and keeping people in the organisation who make good decisions about value creation, balancing reinvesting money back into innovation to provide more value for your customers with extracting value from the business (higher salaries, shareholder returns etc), and maintaining the value and values that align with what the worlds needs and cares about.

In my experience, this frame of thinking has proven to be valuable, as a method for making decisions, for understanding the truths about people and the world, for executing and creating value.