STARTUPS

Sam Altman’s CS183B – Lecture 5 – Peter Thiel

Been busy with office work and finally getting a chance to continue blogging on what I learnt with the Sam Altman lectures.

Lecture 5 was by Peter Thiel. Thiel is notoriously famous for being a cut throat execution oriented investor and has invested in some of the most successful startups on the planet. His lecture was of course polarizing (wouldn’t have it any other way) titled Competition is for losers and mostly took out pieces from his very successful and highly recommended book Zero to One: Notes on Startups, or How to Build the Future.

Salient points

1.)  If you’re the founder, entrepreneur, starting a company you always want to aim for monopoly and you want to always avoid competition. And so hence competition is for losers!

2.) If you have a valuable company two things are true. Number one, that it creates “X” dollars of value for the world. Number two, that you capture “Y” percent of “X.” And the critical thing that I think people always miss in this sort of analysis is that “X” and “Y” are completely independent variables, and so “X” can be very big and “Y” can be very small. “X” can be an intermediate size and if “Y” is reasonably big, you can still have a very big business.

3.) If we look at perfect competition, there’s some pros and cons to the world of perfect competition, on one end of the spectrum you have industries that are perfectly competitive and at the other end of the spectrum you have things that I would say are monopolies, and they’re much more stable longer term businesses, you have more capital, and if you get a creative monopoly for inventing something new, I think it’s symptomatic of having created something really valuable.

4.) Companies lie for their own benefit regarding monopolies. Anyone who has a monopoly will pretend that they are in incredible competition; and on the other end of the spectrum if you are incredibly competitive, and if you’re in some sort of business where you will never make any money, you’ll be tempted to tell a lie that goes in the other direction, where you will say that you’re doing something unique that is somehow less competitive than it looks because you’ll want to differentiate. (Example, a restaurant not making money in Palo Alto will position itself as “Well we’re the only British food restaurant in Palo Alto” to seek attention of the monopoly they create. CounterExample of Google who have monopolized the search market but all press and PR is about Self driving cars and the competitive space they are in)

5.) Very counterintuitive ideas that comes out of the monopoly thread is that you want to go after small markets. If you’re a startup, you want to get to monopoly. You’re starting a new company, you want to get to monopoly. Monopolies have a large share of the market, how do you get to a large share of the market? You start with a really small market and you take over the whole market and then over time you find ways to expand that market in concentric circles.

Conclusion:

So much of people’s identities got wrapped up in winning these competitions that they somehow lost sight of what was important, what was valuable. Competition does make you better at whatever it is that you’re competing at because when you’re competing you’re comparing yourself with the people around you. I’m figuring out how to beat the people next to me, how do I do somewhat better than whatever it is they’re doing and you will get better at that. I’m not questioning that, I’m not denying that, but there often comes this tremendous price that you stop asking some bigger questions about what’s truly important and truly valuable. Don’t always go through the tiny little door that everyone’s trying to rush through, maybe go around the corner and go through the vast gate that nobody is taking.

 Now if you haven’t been catching up, its fine, my final post in this series is going to be an infographic on what’s been talked about so far and I absolutely recommend his book Zero to one – Buy it here, must read for anyone wanting to build startups

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