A few days ago, Y Combinator’s How to Start a Startup course invited billionaire investor Peter Thiel to lecture Stanford students about business strategy and monopoly theory. Thiel is most notorious for investing $500,000 in Facebook in 2004, which turned into $500 million when the company went public in 2012. He is also a Founder of Paypal, Palantir, and Founders Fund.
Below I’ve summarized the three main points from the fifty-minute lecture.
COMPETITION IS FOR LOSERS
Thiel believes that successful founders of startups need to have the mindset of creating a monopoly. Some of the most successful companies in the world (Apple, Google & Facebook) have dominated a niche market without letting the big titans find out.
For startups looking to create the next big idea you need to conquer your own micro-universe. For Facebook, it was the college kids in Harvard that no one like MySpace or Friendster were paying attention to. Harvard kids liked feeling exclusive, and Facebook fed into that desire, so it was only a matter of time before the social network spread like wildfire. After opening up the registration to all colleges, it then went after high school students, and then eventually to the rest of the world.
Moral of the story? Go out there and find your Harvard.
BE THE LAST MOVER
It sounds almost counter-intuitive in the startup world because everyone pushes you to have that “first mover advantage”, but Peter Thiel begs to differ. He firmly believes that the company who is the last mover wins the market in the long-term.
As Thiel notes,
“You want to be one of the last companies in that category, those are the ones that are really valid. Microsoft was the last operating system, at least for many decades. Google was the last search engine. Facebook will be valuable if it turns out to be the last social networking site.”
The tricky part is entering a market late enough to not be crushed by the future entrants, but no so late that the market is already closed off to new companies entering the space.
So basically, the most valuable companies are the ones that come in last rather than first.
BE SKEPTICAL OF THE LEAN STARTUP
Thiel also went after Eric Ries’s “Lean Startup” movement of getting as much feedback from your users as possible and to keep iterating. He argues instead that you need to find a category and be miles ahead of the rest of everyone else.
For example, Google’s proprietary PageRank algorithm was an order of magnitude better than Alta Vista and every other search company out there. The same can be said about what Apple did with smartphones when it came out with the iPhone.
What do you think? Do you agree? How would you go about creating the billion dollar startup?