Competition is for losers? Or is it?
Peter Thiel, the founder of PayPal, Palantir, and Founders Fund, believes that entrepreneurs should not compete.
"He argues that no competition represents the ideal business model, and he advises founders and entrepreneurs to always aim for a monopoly and to avoid competition." - AlleyWatch
"When it's the fourth online pet food company or the tenth solar panel company or the one-thousandth restaurant in San Francisco. That's often not a good investment" - USA Today
Although Thiel is a highly credible founder, he does have an investor mentality. Many investors want investments that can make 10X ROI in 10 years, often with a clear exit strategy for the founder.
Many companies in this are community are making $1 monthly - $100,000 monthly. Keep building. Don't feel you have to change to the world with this huge company. Making a couple 1000 with your SAAS is amazing. Small local change and impact is great!
This doesn't necessarily mean you have to create something completely new. That is a misconception about innovation. Some of the greatest innovations stem from using old or common things in new ways or destructing, combining, and reconstructing. Doing so you may not have Global competition but can have local or regional. This is important, especially if you don't really have the intention to compete on the Global scale, because you can adapt a popular model or idea for your local or regional community. Your advantage is knowledge of niche markets and communities that your product is specifically tailored to.
I said that all to say competition is not always a bad thing.
Thiel's observation isn't that businesses must create something entirely new or fail. It's that businesses that have the power of monopolies do atleast one thing in an entirely new way.
There's a subtle but critical difference there. He's not saying your new pizza shop in San Fran is going to fail, he's saying that it's a terrible investment.
He's correct.
If your business plan is to mirror your competitors, you're playing an established game where profits get competed away.
If your business plan is to create the one-and-only commercial teleporter that replaces long-haul trucking, you're playing a brand new game where profits will be monopoly-like.
The teleportation company in my latter example still has customer service, customer acquisition, distribution, legal risks, administration, negotiations, maintenance etc. to deal with like any other company but its value proposition is unique and monopoly-like. That's the "one thing done in an entirely new way" notion in action.
Here's another way to view it:
Create a trucking company (tiny profits)
Create a trucking company with fuel-efficient trucks (better profits)
Create a trucking company with fuel-efficient trucks and tech features for clients (much better profits)
Create a trucking company with fuel-efficient trucks, tech features and innovative pricing model (class-leading profits)
Create a commercial teleportation company that eliminates the need for transportation (monopoly profits)
On a spectrum, you could imagine this going from extreme-competition on the left to monopoly positioning on the right. This is Thiel's observation. He invests in companies that are on the right side in some meaningful way(s).
The spectrum could also read:
One of many < --------------------------------------- > One and only
I mentioned that although he's a highly credible founder when he's mentioning this concept he's talking from an investor standpoint.
I don’t know that there is or should be a difference between a business owner and an investor’s perspective.
Both have a vested interest in lowering competition (which equates to increasing profits). Is a business owner not also an investor?
I don't know about "should" but what "investors" are interested in pursuing and "business owners" are different.
There are some in the community monetizing newsletters. Investors are not investing in that. Other's opening welcoming a saturated market because even while saturated many can still make 4/5 figures. Investor bets are bigshots, you don't have to be a monopoly to have a good business.
Investor - Interested in returns on capital for themselves
Business - Interested in keeping the business alive
I surely don't have to prompt the difference in investor interested and business owner interests are why many companies (not just tech companies) make a lot of questionable decisions they make. Of course I'm making a generalization that investors only care about returns on their own capital.
A company is merely a black box that takes a dollar in and outputs that same dollar plus profits. That's it.
Businesses create value, deliver value, and capture value. If the business does this profitably, investors will invest, regardless of the amounts involved or the audience targeted.
Business owners AND investors alike understand this concept very well and play their parts in extracting the value based on their contributions.
If my 10 yr-old niece invests $300 dollars of her allowance in a gorgeous lemonade stand, she is both an investor and a business owner.
Investors can invest any amount in a company. I would invest in a newsletter if the rate of return was big enough.
Investors want a return on invested capital.
Business owners want a return on invested capital and time.
They might argue over how to do things, that's expected, but their aims are identical - to yield profits.
I'm curious, would you mind defining the term "investor" for the purposes of our conversation?
Yes, aims are identical but priorities not in the same order which is the key for me.
An investor is responsible for allocating capital for the aim of maximizing returns. An investor is not responsible for people at least not in the same context.
A business owner, should not, place maximizing capital over the wellbeing of employees and customers.
Small but important difference especially in the day and age we're living in today.
In reference to the original post, you can run a successful business without seeking a monopoly. Monopoly thinking, in my opinion, is an investor mentality. Obviously the term success is relative.
Agree. Thanks for clarifying Peter Thiel's real message.
What the OP said is nothing wrong, except the literal meaning of "Competition is for losers" is not what Peter was trying to say in his talk.
Great point about mentioning Peter Thiels' investor mentality context!
Many entrepeneurs expect to reinvent the wheel while for most of us that won't happen and I actually see that as a positive in terms of competition.
The market is relatively saturated and innovation happens gradually on a day by day basis unless you enter a completely new space suddenly emerging (which involves risks the majority of us is not willing to take or doesn't have the funds for).
That's why realistically I rather look at competition as cooperation opportunities. You can learn from their mistakes and you can often share customers because you rarely cover the exact same use case they need your product for.
Especially for SaaS where customers have a several subscriptions they pay for on a monthly basis.
Ultimately it's more about your own ego and elbow mentality while collaborating and partnering up has great advantages (and from my experience is a lot more fun!).
"Don't feel you have to change to the world with this huge company. Making a couple 1000 with your SAAS is amazing."
100% this, this has always been my goal with it, although still struggling as I fall down ALWAYS on the marketing side. Very introvert and not great when it comes to selling myself or my product. Building the tech is no problem, always the selling but I digress!
I feel it's the same for most of us on this platform, it's more about making some extra money to supplement the day-job salary or earn enough to make it a day job. Not saying having billions of dollars is a bad thing but definitely been able to be your own boss and set your own rules will be enough for A LOT of people.