Monopolies are often demonised as bad things, market bullies and businesses that should be stopped.
However by defining monopolisation as an outcome of innovation it starts to look a little different. Businesses will always be more successful when they differentiate rather than simply compete and innovation can help get you there.
Peter Thiel’s book Zero to One is both a business book and a commentary on the way in which our capitalist world is changing. He was one of the founders of PayPal in 1998, which sold four years later to eBay for $1.5 billion. In 2004 he made an angel investment of $500,000 for 10.2% of Facebook, and still sits on the Facebook board today.
Whilst being a billionaire in his own right and investing funds for others, he spends much of his spare time and considerable funds trying solve what he calls ‘world problems’ – including start-ups in anti-ageing research. So it’s fair to say he knows a lot about innovation and technology, and the changes it can bring to society.
It may seem that as financial advisers it is hard to relate to the world of start-up technology based businesses. Aren’t we all now in the technology business? Human led certainly, but amplified by technology. We are in a crowded market that struggles to innovate and where copy-cat is common. Whilst it may seem that large organisations have the resources to innovate, Thiel believes that real change will ultimately be delivered by the smaller more nimble businesses.
He has a clear vision for technology and set of questions that each business needs to answer before they innovate. He recommends that when launching a new business the perfect place to start is with a small concentration of people serving people where there are few or no competitors. Then you scale up, keep your advantages in proprietary technology and use network effects (ie a service is more valuable the more people use it).
Thiel writes that strong businesses start with a unique market position, weak businesses are those that fail to differentiate. When you look at your business – how does this fit? He talks about ‘disruption’ in a disparaging way. Disruption is often a buzzword for anyone who has a trendy idea – dangerous when you are picking a fight you can’t win. He believes the creation of new value is where a business should focus its efforts.
When Peter is hiring staff he asks them “What important truth do very few people agree with you?” He justifies this approach by saying that brilliant thinking is rare but courage is even shorter supply than genius.
If you can’t answer this question for yourself, go and find someone who can answer it. They could just be your greatest employee or business partner.
Why should advisers read this book? Well if you are a business owner it will make you really think hard about differentiation of your service model. It will help you ask the right questions of yourself, staff and clients. You just might spark that one idea that transforms everything.