Startups: Avoid Competition (don’t neglect it)

Years ago, Peter Thiel provocatively proclaimed in the Wall Street Journal that “Competition Is for Losers” and I recall loving the headline not for the negative connotation implied, but for the play on words that you’re going to lose if you set out to compete.

“The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly. “Perfect competition” is considered both the ideal and the default state in Economics 101. So-­called perfectly competitive markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines. If there is money to be made, new firms will enter the market, increase supply, drive prices down, and thereby eliminate the profits that attracted them in the first place. If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels. Under perfect competition, in the long run no company makes an economic profit.”

– Peter Thiel; Zero To One

This is why startups are what? By definition? Not what others are doing.

Startups are an efficient and exceptional application of innovation and marketing.

Innovation is doing something distinct and new. Marketing is knowing what everyone else is doing and differentiating your experience to create value and customers.

Meaning… don’t just do what they’re doing.

Not, “avoid competition” in the sense of going out of your way to not be known by them. Instead, “avoid,” as in having anything directly and literally the same as competitors; if you’re just doing what other startups (or established companies) are doing, you’re making your own risk undertaken more difficult.

Startups are not the same as “new businesses.” A new business has direct competition; a new business is the type of new venture that has a known…