Concept
Escaping competition
Escaping competition is Thiel's goal for every company: become so much better at something that nobody else does it, through proprietary technology that is ten times better, network effects, economies of scale or brand, so that profits are not competed away.
Thiel's economics are blunt: in a perfectly competitive market no company makes a profit, because every advantage is copied and every margin is bid down. The valuable companies are the ones that escape, and he calls what they build a monopoly in the plain sense of one seller. Four things build one. Proprietary technology that is at least ten times better than the alternative, because a small improvement is a competitor's marketing claim and a tenfold one is a new category. Network effects, where the product becomes more useful as more people use it, which only work if the product is valuable to the first small group. Economies of scale, where the cost of serving one more customer approaches zero. And brand, the hardest to build and the easiest to fake. The founder's question is which of the four applies, and if the honest answer is none, the company is competing, and competing is what Thiel says is for losers.
A real-life example
Two grocery-delivery apps in Ankara spent a year matching each other's discounts and both lost money on every order. A third company ignored the fight and built a routing system that let one courier serve three times as many addresses per hour, a tenfold cost advantage in the densest neighbourhoods. It never ran a discount. Within a year the two competitors were bidding to be acquired by it.
How to use it
- 1Ask which of the four you are building: ten-times-better technology, network effects, scale or brand. Write the answer down and be honest if it is none.
- 2Aim for tenfold, not ten percent; a small improvement is a claim, a large one is a category.
- 3Avoid fights you can only win with money, such as discount wars, and put the money into the thing that makes competition irrelevant.