Reading time – 5 minutes
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A startup should focus on vertical growth in which new technology is produced. This is called zero to one concept. This happens in great startups. You don’t just increase a bit but you add a whole unit.
Hence startups work on modern rules
1. Sales matters alongwith product.
2. Take risks
3. Try to capture small niche and try monopoly.
Incremental improvement in existing technology is horizontal progress. As happens when we copy or slightly improve existing technology. This is seen during globalisation. Whatever new comes you can see a Chinese made copy of that.
Competition is two types–
It depends on demand supply. Competitors wipe out profits of each other. Like most of the commodities. But paradoxically little successful players here show themselves as greatly positioned. Competition creates losses for both parties and opportunities for new disrupter like Apple against microsoft and Google.
2. Monopoly– Provides such service that no one can compete like Google in search engine business. But these companies generally hide the fact that they have monopoly. They show themselves being small part of big market.
So focus on monopoly by solving a unique problem. This drives progress and create profits.
See what is future cash flow of an Idea. Most of tech companies become profitable after 10-15 years. Like PayPal, LinkedIn, twitter are still to become profitable. But they provide value.
Ask if this business will be around after 10 years.
How to get monopoly in a sector–
1 . Proprietary technology– At least 10 times better than closest competition. Otherwise it will be hard to attract customers.
Like books on Amazon were many folds better due to large inventory and ease of selecting.
ipad was ten times better than hand held computers before it.
2. Network effect– It helps in rapid spread of a new idea. It also makes products of company available universally. Like Facebook has everyone we know on its list hence we stay with it..
3. Scalability– When fixed costs lead to exponential sales. Like Twitter, softwares. See if your business is scalable.
4. Brand– Brands attract premium from customers. Like Apple
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So little bit about steps of doing it- Getting your Idea above the floor.
1.Start in a small market. Like PayPal connected with ebay sellers before it spread elsewhere.
2. After successful start expand your market laterally. add new categories and products.
3. Don’t disrupt. Stay humble and work on improvement. Don’t try to hunt down big players When Napster wanted to disrupt music industry single handedly, it was destined to fail.
4. Be last mover or create last improvement in a specific market.
5. Be indefinite optimist who believes future will be better but not sure how.
Always keep Power law in mind. Few things are more important than others and these should not be missed.
6. Look for secrets that are still to be discovered. Don’t loose faith in secrets like HP who instead of focusing on innovation; focused on affordable printers and lost its future growth in tge process.
If Andrew Wiles could solve Fermat’s theorem, 358 years of its creation; more things are possible.
Look how world works like Airbnb. Uber saw unmet opportunities. See where no-one is looking.
7. Good foundation is must as it can’t be changed later.partners should be happy to work with each other and it’s better if they have complimentary skills.
Ownership should be specified.
Possession means who runs day to day.
Control means normally a board.
These things should be clear.
All should be full time.CEO should not overpay himself. Give equity to staff.
Specify work of everyone.
8. Customer life time value must be more than customer acquisition cost.
See type of sales you need.
Personal sales or traditional advertising. Refferal program for existing customers helps.
Green tech companies like solar failed in 2012 because they didn’t see these basics.
Tesla succeed because it got these basics right.
Before you start up ask these questions-
1. Engineering – can you get next breakthrough technology which is 10 times better.
2. Timing– Is time right for your product.
3. Monopoly– Can you get big share of a small market.
4. Do you have right team.
5. Your delivery system is ok.
6. Can you last 10 to 20 years.
7. Have you identified a unique problem to solve.
One side note- Founders are at extremes of normality.
Inspiration- Zero to one by Peter Thiel.
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Currently Peter Thiel is heading Planatir which studies big data to find patterns and hence helps in identifying frauds, terror attracts, Infections etc.