Business Bite #1: Why You Shouldn't be Competing with Other Businesses
This article is the first post of a series of 10 "business bites" where I provide you with business insights from leading entrepreneurs and business people. These articles will be published on a weekly basis and are short and sweet; something to read at the bus stop (perhaps 🤔).
In our first Business Bite, we'll hear from Peter Thiel on his philosophy about competition and what makes a successful business. Content warning: Be prepared to have everything you knew about competition flipped on its head.
Why Competition is Sh^t for Business
Often we are told that competition is good for business and good for the economy because it forces businesses to compete. If businesses are to survive, they are told to "keep up" with others in the market to capture most of the market.
Peter Thiel flips this logic on its head. In his book, Zero to One, Thiel has the following to say about competition:
- The more we compete, the less we gain. Despite capitalism being premised on businesses accumulating capital and resources, competition has the effect of eroding away profits because businesses in competitive markets sell products already in the market, thereby increasing supply to push prices down. My two cents: This erodes profits which gives businesses less resources to use to innovate and deliver more value to the customer.
- Rivalry makes businesses overemphasise and slavishly copy what has worked in the past. Businesses are more concerned about emulating what's already in the market at a lower price rather than building something new and creating more value for the consumer.
In fact, Thiel correctly highlights that the companies who have delivered the most value to the consumer are monopolies who have built something new and undifferentiated. Put differently, think about the valuable company that nobody is building.
Thiel goes on:
- Monopolists give customers more choices by adding entirely new categories of abundance to the world. One example: Google. Another example: Apple. Yet another example: Facebook (now Meta). The trend: Each of these companies built where no one else was building and absolutely killed it.
- Rather than waging war on each other, monopolists have the space to innovate. Competition forces you to focus on what the other competitor is doing rather than running your own race.
So back to my question, "is competition good for business?" The answer is hell no - Not if you want to create lasting value and endure in the market.
This entire article could be summarised by the following quote from Thiel in the same book:
All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape the competition.