Great Businesses Think and Act Like Monopolies

When you think of an idea for a new business, often the first thing you’ll do is check to see if the idea already exists.

We find ourselves almost instantly Googling the idea, category, market or product to tell us if it’s something worth pursuing. This desperate search for social proof heavily influences whether we validate the idea or not. Unsurprisingly, the outcome from this search often ends up like this; if someone else is doing it, it must be an idea worth investing time and money in. After all, the last thing we want to do is waste time on a business that we think won’t have a chance of succeeding, right?

This pushes us to build out businesses and ideas within markets that have already been validated, which by nature, already have some level of competition. The problem with this, is that the more competitive a market is, the less opportunity there is for huge profit margins and aggressive pricing power. So, why should we gravitate to markets that are more competitive, even when the upside is often far less attractive?

In this model we’ll uncover the concept of monopolies and why you should view them as the most attractive opportunities.

Monopolies are ideas with no competition

One core reason we don’t value monopolies, is we simply don’t understanding the fundamentals of what a monopoly is.

Put simply, a monopoly is one of four core competitive markets in microeconomics. By further definition, a monopoly is when a project or business has complete market power, due to it being the only player in a market. Monopolies have a distinct advantage, as they can set their own prices for products and see no change in the quantity of consumption or volume sold. With a monopoly, there’s no pressure being forced onto an idea by competitors, so therefore, you have the only option in market and benefit from the winner-takes-all effect.

Sometimes you’ll find that monopolies are manufactured by governments (eg. Russian Oligarchs given entire industries at the break up of the USSR), more often they are created by filing IP patents. However, in this case, we’re viewing monopolies from the perspective of capitalist purism, building a product that is so deeply valuable that no one can afford to compete, like Google’s search engine.

With less competition comes increased power

Google’s search engine is almost a pure monopoly, the local Thai-Scottish Fusion Restaurant is almost entirely not. The former sets its own prices, makes huge margins and has almost no competition, the latter is treated as a commodity, with very fixed prices and extreme competition from other local restaurants. Google controls the entire search market, The Thai restaurant has little control of the local restaurant market. In the words of Peter Thiel when describing competitive markets, “competition is for losers”, so we should avoid it at all costs.

Monopolies are rare, but with huge upside

So we understand the value of a monopoly, yet we still avoid building ideas that may lead to them.

Perhaps its loss aversion, perhaps its social conformity and an unwillingness to stand out from the crowd, perhaps it’s simply the insecurity of our own ideas, or maybe it’s the negative perceptions of monopolies that cause us to automatically think of them as ‘bad’ .

Most likely, it’s a blend of all of these behavioural patterns. However, for all these barriers that stop us starting ideas with monopolistic potential, they’re all significantly outweighed by the upside that comes with monopolistic power. As when its all said and done, few monopolies exist, but all monopolies do well. Governments may aim to stop them when they become too big, but that doesn’t mean you should avoid building them.

Key takeouts for thinking and acting like monopolies:

  1. A monopoly is a position of strength:
    As Thiel has said, “competition is for losers”, andmonopolies have no competition. The benefits of a monopoly infinitely outweigh a purely competitive commodity, so thats what all attention should be focused when building an idea. A good monopoly isn’t designed by governments, it’s one that’s so good that no one has the resource to compete against, like Google’s search engine.
  2. Monopolies often start by going Zero to One:
    In a previous model, we unpacked how true innovation moves an entire market from Zero to One, a term popularised by Peter Thiel and a core pillar of innovation thinking. A Zero to One idea often starts small, so has the benefits of being the first and only, yet, this temporary period of dominance allows a company to grow much faster than any competitor, even when competitors start to play catch up.
  3. Start a monopoly with Skill Stacking:
    A good monopoly doesn’t have to be a big monopoly, it simply has to own a market. Skill stacking i s a method that gives you the opportunity to build a monopoly through layering your top skills over the top of each other to produce a product, this could be either publishing content or building technology <link>

Originally published at https://www.sampaxinos.com on March 17, 2022.

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