What it is: A startup is a new business. In the tech world, startups often offer new products to problems everyone else is ignoring.
Peter Thiel was a co-founder of PayPal and offers advice in his book “Zero to One” particularly suited for tech startups that involves answering seven questions before you even think of starting a business:
- The engineering question – 10x better than current solutions
- The timing question – exponential growth
- The monopoly market – start with a big share of a small market
- The people question – do you have the right people?
- The distribution question – can you create and distribute your product to customers?
- The durability question – will your market be defensible 10 and 20 years from now?
- The secret question – do you have an opportunity others don’t see?
First is the engineering question. That’s where you have to ask yourself is your solution at least 10 times better than what’s currently available? If it’s only an incremental improvement, you’ll never capture the public’s attention.
Look at how lousy most mobile phones were before the introduction of the iPhone. As soon as Apple introduced the iPhone, it started to change the mobile phone market. The iPhone caught on because it was immensely better than existing mobile phone leaders like Nokia and Blackberry, both of whom are now distant challengers with no hope of catching up to the iPhone.
What happens if you go into a business with just a marginally better product? Now there’s no reason for people to switch from their existing product. Look at how many people are satisfied with sticking with Windows PCs rather than switch to anything else. It’s not that a Windows PC is superior; it’s just that everything else isn’t dramatically better. Without a dramatic difference, there’s little reason to switch.
The timing question concerns finding a market that’s ready to explode with exponential growth. In the case of PayPal, they first started with letting Palm Pilot users wirelessly transfer money to each other. When that market went nowhere, they discovered that eBay Power Sellers needed a quick way to make sales and accept payment, and PayPal found its first niche. Once they could satisfy this market, they could rapidly expand to satisfy the entire online market.
The monopoly question revolves around going after a niche market. Get a monopoly over a small market first. Then expand gradually. Facebook initially targeted Harvard students, then Ivy League schools, then universities, and finally the general public. If you start small, you can safely test your ideas until you perfect them out of the visibility of rivals. When you have a monopoly over a small market, that’s the time to start growing.
The people question is about having the right people on your team. The best idea will flounder if you have the wrong people. You need people who can get things done.
The distribution question means you must have a way to reach your customers. If you don’t have a way to reach your customers, you could be selling the best product in the world, but if a customer can’t buy it, your company can’t make money.
The durability question is about whether your idea will still be valid 10 or 20 years from now. While you can’t always see that far in the future, you can tell if your basic idea might still be valid.
The secret question is the most important one of all. What problems do you see that others are ignoring? Uber solved the problem of quick and convenient transportation. Most everyone was satisfied with taxis but Uber took that approach one step further to solve a problem that most people didn’t realize existed until Uber showed them the way.
Likewise Apple showed people what a tablet could do, which made people want to buy one. Until they saw an iPad, most people never thought they needed a tablet. You don’t sell products that people want. You sell products that people don’t even realize they need until they see it for themselves. If you can develop a product like that, you’ll have a huge head start over your competition.
By reading “Zero to One“, you can see if your startup idea is a good one. If you can’t answer all seven questions, it’s time to rethink your idea.
The title of “Zero to One” refers to the idea of taking something and solving a problem that people never knew existed before. Incremental improvements take a product from One to Two. Revolutionary products come out of nowhere, going from Zero to One. If you’re going to create a business, you want a Zero to One business because the payoff is tremendous and the competition is much less.
If your business is no different than everyone else’s, you’ll be stuck fighting for profits. If you come up with an idea that nobody has ever thought of before, you’ll initially find that no one believes in your business, but when it gets going, it will take off precisely because so many people don’t think it will work so competitors will ignore you until it’s too late.
As Peter Thiel mentions in his book, if your idea is just an incremental improvement or a copy of an existing business, you’re already doomed to fail. Microsoft cornered the operating system market, so there’s no future in starting a new operating system company. Google cornered the search engine market so there’s no future in starting a new search engine company (which makes Microsoft’s investment in Bing pointless). Facebook cornered the social network market so there’s no future in starting a new social network.
If you copy someone else, you’ve already lost. Just look at all the companies who copy Apple and work hard to divide a small profit among themselves. Would you rather be one of many Android smartphone manufacturers dividing a shrinking profit margin, or Apple with a small market share but 100% ownership of the entire profit share?
Read “Zero to One” and you can see what it takes to startup a company. Perhaps the next great startup idea will come from you, but only if you can answer all seven questions to your own satisfaction.