Why do startups fail? According to a Harvard Business School Study, 75% of venture-backed startups failed within the first few years of operation. In the book Zero to One: Notes on Startups, or How to Build the Future, Peter Thiel revealed his insight into the start-up world in the USA. Here are the 3 key takeaways.
1. Being unique and differentiation are the foundation of a successful company
To build a successful company, it should avoid rivalry and become unique. Peter wrote, “Monopoly is the condition of every successful business.” It is counterintuitive to what the mainstream economists teach us, which states that the market is efficient because there is competition and drives the cost and price lower, which the customer would eventually benefit. Monopoly, however, would control the market at its own will.
On the contrary, Peter argues that a monopoly would benefit not only the company but also the customer because a monopoly can escape rivalry and competition, which allows them to have the resources to invest in innovation.
Apple dominates the smartphone industry but creates a unique customer experience, optimizing every customer touching point etc. It doesn’t become one of the largest companies in the world by competing with Microsoft which is the dominant at that time.
For a company to succeed, it needs to be unique and differentiate from others. Copying a successful company would not bring you anywhere but stuck at a dead end.
2. Your target market should be big enough for your company to thrive but small enough that you can dominate
When you are conceptualising your business, make sure you define the correct market. A feasible market should be big enough for you to survive, and small enough so you can dominate and continue to exist for decades.
Many owners open their restaurant because they think it lacks a certain kind (for example Egyptian cuisine) of a restaurant in the neighbourhood. So they think they are competing only with the same kind of restaurant in that area, which means no competitor at all. But in reality, they are competing with all the restaurants in that area and the competition is fierce.
The market in the mining industry is big, which is hard for a newcomer to take over. But the market for a particular cuisine is small. It doesn’t mean you cannot survive, but you need to do the calculation yourself to see if the small market is enough to sustain the restaurant.
The idea is to find a market that is big enough that can hold up your company, but small enough that you can become the best of the best.
3. Invest in a company is long-term
A venture capitalist invests in a startup and expects to have its return back after 10 years. When making a decision about the company, we need to think in the long term. The target market should exist in the next decade(s). The company’s strategy should be made with the aim of surviving long-term.
It doesn’t matter whether you beat your competitor in the market. The only focus the company should have is to do what it is good at and think hard to make sure that it is valuable in the future.
Bonus - Useful questions to ask about your company
- The engineering question - Can you create breakthrough technology instead of incremental improvements?**
- The timing question - Is now the right time to start your particular business?
- The monopoly question - Are you starting with a big share of a small market?
- The people question - Do you have the right team?
- The distribution question - Do you have a way to not just create but deliver your product?
- The durability question - Will your market position be defensible 10 and 20 years into the future?
- The secret question - Have you identified a unique opportunity that others don’t see?
Whether you are building a start-up in the USA or not, for a company a success it should be unique, focus on the right market and strategize for the long term. These build the foundation of a startup.