Peter Thiel’s way
Start small and scale upwards
Peter Thiel is the billionaire co-founder of PayPal. Now in the late forties, he’s running Palantir technologies, a software company hidden somewhere in the woods providing help to intelligence agencies.
Thiel has a really different take to business in his book, Zero to One, he stresses that every company should go for being a monopoly. A business is said to be a monopoly when it’s big enough to control the pricing of similar products in the market.
He constantly asks what valuable company is no one’s building?
Let’s get educated by Mr Thiel
Pick a niche
You should be able to control a niche market before you go all out and start tapping into the vast market. He also cites his own example when he let PayPal customers send money through PalmPilots—which was too big a segment to control. With a turn in strategy, PayPal started e-bay centric transactions and succeeded in providing great quality to a small number of users.
Take small steps
Once you take control of that niche market, get ready to expand into other related markets.
The biggest living example is Amazon which started with selling books online and now is the a to z store which sells almost anything that exists in this world. Now it monopolizes the best of markets with its highly competitive prices.
Don’t disrupt or go crazy
Disrupting is now a misunderstood word, it is generalized as beating the competitors instead of creating something new of value.
You have to think long-term
Start-ups are generally the industry trendsetters which bring something new to the market which didn’t exist before. Therefore every start-up is focussed on the notion– that to gain an advantage as the first movers, everything is to be done simultaneously and quickly. Contradicting this approach, Thiel emphasizes on taking things slowly and making long-term goals.
Now let’s come to the more conventional way of creating a monopoly
The simplest way of creating monopoly: Sell quality products in large volume and low margins
Create entry barriers to cut the competition:
Intellectual Property Protection
Don’t let loose your trade secrets in the open, protect it by exclusive legal rights from the government. Now you can scale your business, with an imposed entry barrier. Pharmaceutical industry manufactures two types of medicines, molecular and generic, molecular medicines are always patented which means no one else can use the same formulae.
Establishing a strong distribution channel with the business partners helps to beat the competitors. A long-term association is bound by providing marginal profits to your dealers, suppliers and other intermediaries.
They’re many country regulations which can be worked around and used for your favour. You can take a grant from another country which only gives you the exclusive right to sell the product in your own country. To create differentiation, a few mobile companies give exclusive rights to Flipkart or Amazon to sell their products.
Selling in large volumes
While scaling up the production, costs go down, you get a lesser average cost per unit. The economies of scale discourage other competitors to enter the market, these include electric power, domestic utilities and gas services.
Unique technology which is difficult to decode and replicate gives you a competitive advantage. Customers have nowhere else to go, this results in a large database.
Abundance of capital
When there’s no limit to money and investment, giants rise with a great business plan. Companies like Reliance JIO are the perfect example of market disruptors, they set the benchmark prices of products. JIO shook the industry with its prices and made every other network service provider match them.
Creating a brand name is really a great tool to be differentiated in the market and make customers more loyal. Your brand will start holding customers. If you provide them a great value to the customer, it will enhance your brand equity.