The Rivalry in Perfect Competition
In a perfect competition, no one makes a profit and if you want to create an everlasting valued company, don't create an undifferentiated commodity business. That means, create something that has a differential value. Possibly ten times larger value than existing company. Something that is not easily replaced.
Rivalry brings loss to both party. In a rivalry between Google and Microsoft, Apple kicked off. You lose war fighting useless battles.
Why Monopoly play down their 'monopoly' tag?
Monopoly disguise their markets as union of several markets. They don't show themselves as monopoly. They play themselves down so as to hide from everyone's eyes.
Google doesn't project itself as the number one search engine, it markets itself as a small fish in a big pond of advertising services.
Case Study: Twitter vs The Times
Twitter was valued more than The Times despite making loss while The Times was making profit. (At the time of Twitter ipo) why??? because investors believed in future cashflow monopoly of Twitter.
Why slow is better?
Rapid growth distracts long term growth and durability. Near terms growth misses the big question: Will this business be around in 10 years? Focus on the long term not short term growth.
Some characteristics of monopoly:
Proprietary Technology:
->10x better than substitute.
Network Effects:
If all are your friends are using, it makes sense to use it. Like WhatsApp, Facebook.
Economies of scale
Branding:
->technology>branding
Always start small. Easier to start in small market. Start with Small group of people who really need the product not having any competition.
Expand from niche and then go broad like Amazon went from selling books to all categories instead of expecting more book readers.
Don't disrupt. Avoid competition.
Moving first is a tactic. Making cash flow in future is better. Dominate a small niche and scaling up from there is better. Last mover may be better with long term vision.
Definite vs Indefinite Philosophy
In indefinite future philosophy, money is an absolute necessity. In definite future, money is a means. Finance prospers in indefinite future. When people don't know what to do with their money, they diversify.
Indefinite philosophy focuses on human limits and survival. Definite philosophy focuses on achieving something.
Indefinite optimism, indefinite pessimism or definite pessimism are not good mindset for creating something new and valuable. Definite Optimism is a must.
The real reason why BioTech Startups fail:
BioTech startups: indefinite thinking
They are Complex and researched on something natural and mysterious. In fact the researchers take chances; penicillin was made by mistake!
Software Startups: definite thinking
Computers obey our commands.
So Is BioTech startups doomed? Or Is Biotech holding back due to indefinite optimism?
Without a plan, indefinite optimism doesn't win a company. Long term planning is undervalued by short term indefinite world. Definite founders with robust plan don't sell their companies. BioTech has to have definite optimism.80-20 Rule:
There's power law in everything. 20 % people control the 80%.For Venture capitalists:
1. Only invest in companies that have the potential to return value of entire funds.No diversification.
2. Follow rule 1.
Every individual is an investor. Be it entrepreneur or salaried individual. We believe our career will work out in future. But investors who understands the power law. Life is not a portfolio. You can't run dozens of companies at the same time and hope all wins. Similarly, individuals can't have parallel careers in multiple fields. Diversification leads to hedging. School teaches opposite. Every college teaches hundreds of courses. Focus on something you would be good at doing but before that think hard if it would be valuable enough in the future.
In a power-law world, you can't afford not to think about where your actions will fold.
Questions by Peter Thiel that you should try to answer:
What important truth do very few people agree with you on?
What valuable company is no one building?
Why aren't people looking for more secrets? People act as if there aren't any more secrets left to be found. Why do people think that? Geography: no new places left to explore.
You can't find secrets unless you believe it. It will yield only to relentless searchers.
Every great business is built around a secret that's hidden from the outside. A great company is a conspiracy to change the world. When you share your secret, the recipient becomes a fellow conspirator.
Foundation of startups:
Beginnings are special.
Get the first things right.
Whom to start with? It's similar to finding whom to marry with. Founders need to know each other really well.
Need a structure for long term.
Need to get some things identified:
1. Ownership: who legally owns the equity
2. Possession: who actually runs on a day to day basis
3. Controls: who formally governs the decisions
Board:
A board should have 3 members ideally. Not more than 5. A public company have around 9.
CEO:
CEO should be low salaried initially. Pay less than everyone in his company. Take lowest salary in the company. Set an example.
Employees:
Start-ups can offer equity than giving more salary. Only at start, we have the opportunity to set the rules and align people for the future. However some companies maintain their characteristics of beginning by their openness to inventions. Through this culture, the founding can be extended indefinitely.
Paypal cofounders each started a billion dollar company. Why work with people you don't like.
Why will the 20th engineer work with you instead of joining Google? First few will be attracted by the stock options and positions. What about the 20th engineer??
Don't promise perks, people joining for perks won't be a good fit. Just promise opportunity to do irreplaceable work on a unique problem, alongside great people. You can't be the google of 2020 with perks and compensation but you can be google of 1999 if you have good answers about your Mission and team.
Early team should be same kind of people. Everyone to be equally obsessed. Match talents with task. Define roles so that you eliminate competition.
Sales:
Paypal focused on selling to valuable customers first and finding a niche market with high transactions. If you don't have a sales team, you're the salesman yourself.Complementing humans and machines:
LinkedIn didn't try to replace recruiters. It became a channel for them.
Questions to answer before starting up by Peter Thiel:
1. Engineering question: Can you create breakthrough technology instead of incremental improvement? Make 10x better product.2. Timing question: Is now the right time to start your business?
3. Monopoly question: Are you starting with a big share in small market?
4. People question: Do you have the right team?
5. Distribution question: do you have a way to not just create but deliver product?
6. Durability Question: will our market position be defensive 10-20 years in future?
What will the world look like in 10-20 years from now and how will my business fit in?
7. physique question: Have you identified a unique opportunity that others don't see?
Have answers to these questions above before starting up.
Peter Thiel on Social Entrepreneurship:
Social entrepreneurs are in ambiguity due to their goal of being both financially sound and being good for society. The only way to do good is to make something different.The best problems are the ones no body's trying to solve.
Business should start small by finding a niche. Facebook started for a university campus.
That's all folks. Feel free to suggest edits or send your feedbacks on Instagram. Hope it adds value. I will keep posting notes of books I liked.
Cheers!
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