Peter Thiel is one of the greatest tech investors of this decade, he founded Paypal with Elon Musk and others. He was the first big investor in Facebook, investing $500,000 in 2004, since then, he turned his initial investment into more than $1 billion in cash. Thiel is also the author of 0 to 1, a book about innovation and grand visions.
Peter, describes himself as a contrarian thinker, and is with no doubt one of the brightest minds in silicon valley.
Through his long experience, Thiel identified 7 conditions for Startup success, he formulated them as 7 questions in his book 0 to 1, here’s the:
7 conditions for Startup success by Peter Thiel
- The Engineering Question: Can you create breakthrough technology (vs. incremental improvement)?
Go from 0 to 1 as opposed to going from 1 to n. Small, incremental steps may be safe path forward, but they won’t lead to the market-creating innovations, according to Thiel you should embrace grand visions.
For example: Amazon, became a virtual bookstore, when none existed.
- The Timing Question: Is now the right time to start this particular business?
There’s an old saying in startups: “being early is the same as being wrong.” Here’s some examples of startups that were too early and as a result failed.
GO Corporation preceded the Palm Pilot, who preceded modern tablets.
SixDegrees.com launched in 1997, was the original online social network, but people weren’t ready for a social network yet.
- The Monopoly Question: Are you starting with a big share of a small market?
You need to offer a 10x solution for a niche market, then scale up. You need to build and maintain a monopoly. Because capital and competition are opposite, capital create profit, competition is all about lower prices and margins, thus eliminates profit. Monopoly creates high profits and allow companies to invest into the future.
Google and Facebook are great examples, Facebook started as a niche and Google enjoys his monopoly revenue to invest in many other projects.
- The People Question: Do you have the right team?
Is your team skilled, motivated , complementary, harmonious and most importantly determined?
If not, Outsource your Startup phase !
- The Distribution Question: Do you have a way to not just create but deliver your product?
Startups think if they build a great product, customers will come. Thiel disagree, You need a strong sales and distribution network that is built into the operation from the outset.
Recommended, boost this by partially outsourcing marketing and outsourcing sales.
- The Durability Question: Will your market position be defensible 10 and 20 years into the future?
There are four main factors that basically allow to do that:
(1) Proprietary technology: An IP will block competitors from cloning you, or at least make it very hard;
(2) Network effects: The more people using your service, the more valuable the service will become, making it more difficult for someone to compete with you later, think of Facebook.;
(3) Economies of scale: The more you increase production, the lower the costs will be, and the harder for your competitors to undercut you and generate any profits;
(4) strong branding: Strong branding lower distribution costs, a competitor will need more upfront investment in advertising to generate awareness and penetrate your market .
Firms like Google, Facebook, Twitter have these elements. Zynga and Groupon don’t.
- The Secret Question: Have you identified a unique opportunity that others don’t see?
According to Thiel, success comes from going 0 to 1, in a niche market and monopolizing it. Trying to build the next Google or the next Facebook, will simply not work!
You need to have a unique solution, to a problem and execute it well.