What’s the goal of creating a business? Many of us have been taught that the goal is to create value for the customer. That’s only part of the answer; the company must also capture value for itself. That’s the goal, as Peter Thiel and Blake Masters make clear in their new book, Zero to One: Notes on Startups, or How to Build the Future.
This contrast makes the point: in 2012,US airline companies served millions of passengers and created $160 billion in value for passengers; at an average price of $178 for one way service, they earned $0.37 per passenger trip. In contrast, Google brought in $50 billion and kept 21% od the revenues as profits. The difference: airlines compete on price, Google stands alone.
Thiel reminds us that the goal for companies isn’t to enter a market win which there is lots of competition and spend non-operational resources differentiating oneself – because the result is that no company can achieve substantial economic profits. Instead, startups should enter markets in which you can dominate the competition, as a near-monopoly does, by focusing on providing a quantity- price combination that maximizes its profits.
In perfect competition, businesses are so focused on today’s profit margins that they can’t plan for the future. In contrast, creative monopolies actual add to the economy by providing the economic platform for continued development and growth.
Several companies used Commanding Strategies to launch their startups. TD Bank became America’s Most Convenient Bank – open 7 days a week – by limiting its product offerings to be cost-effective in service its target customer market. Leveraging this different business approach continues to allow them to maintain this market advantage.
Companies like Apple focus on building ecosystems in which each product/service provides clearly differentiable benefits and mutually reinforce those of other product/services within the ecosystem (e.g., iPhone, iTunes, Icloud, iPad, iPod, etc.). They promote their brands from the standpoint of the ecosystem to capture the most value.
In sum, CEOs should aspire to have highly competitive businesses, but to have virtual-monopolies that provide both customers and customers with value. What are you doing to put significant distance between you and your “competitors”? Share with us!!