Peter Thiel, Courtesy Getty Images

Peter Thiel, Courtesy Getty Images

Just listened to a talk given by Peter Thiel on the “How to Start a Startup” podcast. You can find it on iTunes here. Definitely take the time to listen if you’re interested in starting a company.

Thiel believes that the success of a company is determined by a simple formula:

“For a business to be valuable, two things must be true: you create X dollars of value for the world. You capture Y percent of X.”

X (the size of the market) doesn’t have to necessarily be huge if you capture a large enough percentage of it. He compares the airline industry to online search. Domestic air travel accounts for $195B in revenue annually. Google brings in $50B annually. The search market isn’t much bigger than Google’s share. So which company would you want to be: Google or American Airlines?

 He argues that the goal of every founder/CEO is to establish a monopoly. Do something different from everyone else, go after a niche market and own it. Then expand to related areas, increasing your dominance. Or to put it another way, Amazon started out as an online bookstore. This lead him to another great line: 

“All happy companies are different because they are doing something very unique; all unhappy companies are alike because they fail to escape the essential sameness that is competition.”

He’s repurposing a quote from Leo Tolstoy’s Anna Karenina:

 “All happy families are alike; each unhappy family is unhappy in its own way.” 

I enjoyed Thiel’s talk. He made a lot of great points and expanded his counterintuitive argument that you should not hope for competition but avoid it. Go check it out.